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The Average 2021 Interest Rate on a Business Loan

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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.

Interest Rates

Average Small Business Loan Rates by Lender and Type

These are the current averages for small business loan rates in 2021:

  • 2.6% to 7.2% from national and regional banks
  • 13% to 71% from online alternative lenders

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. 

  • Bank loans: 2.6% to 7.2%
  • SBA 7(a) loans: 5.5% to 11.3%
  • Lines of credit: 2.6% to 80%
  • Online term loans: 7% to 99.7%
  • Merchant cash advances: 20% to 250%
  • Invoice factoring: 13% to 60%

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. 

What Factors Affect Rates from Small Business Lenders?

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:

  • Your business history
  • Your annual revenue over the past several years
  • Your company’s financial history and future projections
  • How reliable you’ve been when paying off previous debts
  • The industry in which you operate
  • The requested loan amount 

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.

How to Qualify for Lower Small Business Loan Rates

Taking these factors into account, here are a few things you can do ensure you secure the lowest rates on your small business loan:

  • Develop a solid business plan and growth strategy
  • Wait until you have enough business history built up
  • Update your business plan to include your latest goals and industry performance
  • Present clear and realistic financial projections
  • Improve business cash flow through strategic marketing and sales tactics
  • Make on-time payments to reduce existing debt and boost your credit score
  • Compare your financing options between multiple lenders to secure the best deal possible

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. 

Find Easy Small Business Loan Options Today

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!

Last Updated on July 3, 2019

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!

About the Author, Joe Camberato

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.

https://www.linkedin.com/in/growbyjoe/

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Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.