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Small business loan interest rates vary widely depending on the type of lender, the loan product, and your own qualifications. The average interest rate for a small business loan in 2021 ranges between 3% to 7%, but can be higher.
It’s tempting to go after the cheapest loan you can find, however there are other important factors to consider when applying for financing, such as the size of each loan, the repayment structure, what you can use it for, how easy it is to qualify for financing, and more.
If you want to find the best business loan that works for you on all fronts, not just great rates, it helps to have multiple business loan options and compare.
Here’s what you need to know on how to find the best small business loan interest rates by lender and loan type.
These are the current averages for small business loan rates in 2021:
The above rates are calculated as average annual interest rates (AIR) instead of annual percentage rate (APR).
The AIR represents only the cost incurred when borrowing money, whereas APR includes other expenses, such as origination fees, closing or document processing fees, which can differ by lender.
Business loan interest rates can also vary by loan type. Here’s a more detailed look at what you can expect to pay based on different financing options. These business loan rates for 2021 are calculated as average APRs.
Note that interest rates fluctuate frequently, so a lender may quote you more or less than shown here. It’s also important to remember that while banks typically have lower interest rates, the borrowing process is oftentimes longer and more difficult. You’ll need to have good credit, multiple years of business history, and approval for how you’re going to use the funds.
A lot goes into how lenders price their loans, and not all qualifying businesses will be able to get rock-bottom rates.
Traditional lenders like banks look at both personal and business credit scores, and many require a FICO score of at least 650. However, to qualify for low rates on small business loans, your score generally needs to be in the “good” or “excellent” range, which starts around 700.
Along with your business and personal credit score, lenders also look into:
These factors show how likely your business may be to default on a loan. A higher risk of defaulting translates to higher rates.
Term length can also affect how much you’ll pay. Sometimes, a low rate spread out over a longer term costs more than a short-term loan with higher rates. That’s because you’ll end up paying more in interest over time.
Economic factors also influence business loan rates. The market prime rate, which is the rate lenders give their most creditworthy applicants, is used as a baseline for calculating loan costs. As of August 26th, 2021, the market prime rate stands at 3.5% but is subject to change about every six weeks.
When the economy is strong and businesses are taking out more loans, rates tend to increase. In turn, banks lower rates during slow times to encourage borrowing. Competition between lenders can also play into how much rates drop.
Taking these factors into account, here are a few things you can do ensure you secure the lowest rates on your small business loan:
Ideally, you’ll want to look for lenders without prepayment penalties so that you can pay your loan off early and save more on interest if possible. Ultimately, it’s important to stay diligent with loan payments – this will boost your credit score and make it easier to qualify for even lower rates in the future.
In some cases, business owners who can’t qualify for funding will opt for credit cards instead. Although this method is associated with a lower barrier to entry, it comes with lower funding amounts and higher fees than most business loans.
When it comes to choosing the best small business loan rates, it helps to have options. National is an online marketplace that works to match you with over 75 different lenders – many of which don’t maintain minimum credit score requirements.
Simply fill out the 60-second application and input some basic information about your business. From there, a Business Financing Advisor will reach out to you to discuss your financing goals and options. You can compare different offers and select the one that suits you best according to rates, repayment terms, and funding amounts.
The best part: once you’ve qualified funding can be available in as little as 24 hours!
Whether your goal is to open a new location, buy materials, hire new employees, mitigate cash flow distributions, or take on other growth projects, National has solutions available.
Get the fast, flexible funding you need to take your business to the next level. Apply now!
National Business Capital is the top FinTech marketplace offering small business loans and financing. Harnessing the power of leading technology and smart people, we’ve streamlined the application process to secure over $1 Billion in financing for business owners nationwide.
Our Business Financing Experts work within our 75+ Lender platform to match you with the right option. Easily access the best low-interest SBA loans, short and long-term loans, business lines of credit and equipment financing all in one place.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Joseph Camberato, CEO of National Business Capital, developed a passion for business at a young age. Joe started his company in 2007 in his spare bedroom and has grown to secure over $1 Billion dollars in financing for small business owners nationwide. National’s team has an amazing culture and has been name the #1 Top Workplace on Long Island 3 years in a row and counting. Joe is a trusted financial expert who’s published more than 2,000 articles in the last 3 years. His articles have generated over 5 million page views and has been featured on blogs such as Google News, Yahoo, CNBC, Forbes Magazine, etc. His passion has also inspired him to build the "GrowByJoe” YouTube channel where he shares his insights into small business trends and tips for growth. Joe also holds a seat on Forbes Finance Council and is an active member of the Young Presidents' Organization (YPO), a global leadership community.