Business Loan Interest Rate

Knowing about a loan interest rate is vital in determining which loan is suitable for your business in the long run without any risks. Now having one specific interest rate for all loan applications could have made the process of applying to loans much more manageable. However, the reality is much more complicated than that.

There are quite a few factors that determine the kind of interest rate you will get. The qualifications you need can range from the type of loan you are applying for, which lender are you approaching for particular funding, and a few more other reasons.

To grasp the concept of a typical business loan interest rates, we must further look into what affects these rates for them to vary from one loan to another.

Factors Affecting Loan Rates

When you are applying for a loan, you need to always consider the interest rates of different kinds of funds before you send in your application. A loan application is usually determined by aspects that are dependent both on your business and some external factors.

Types of Loan

Loan type is one of the external factors that determine the interest rate. Some loans are guaranteed, such as SBA loans, which offer a minimum percentage because the investor has collateral they can get if the business fails to repay the loans.

Community banks, international banks, online banks, credit unions, and many others are some of the most common loan types that offer different interest rates.

Types of Loans Interest Rate

  • SBA Loan                           7% to 10%
  • Online Loan                        7% to 99%
  • Bank Loan                          3% to 13%
  • Invoice Factoring               14% to 60%
  • Merchant Cash Advance    21% to 250%
Invoice factoring and merchant cash advances are one of the few loans that have a higher interest rate. In contrast, bank loans and SBA loans have the lowest out of all interest rates, so you can tell that they are the least expensive and yet most competitive to get from other types of loans.

Types of Lender

The type of lender that you seek out for your choice of loan is also another external factor that affects your interest loan rates.

Types of Lenders' Interest Rate

  • Big National Banks                             2.50% to 5.14%
  • Small National and Regional Banks   2.49% to 5.40%
  • Online Lenders                                   14.00% to 71.00%
  • Foreign Banks                                     1.45% to 5.67%
Even though there isn’t a lot of difference between the bank loans, getting them can be a long process, and often, you are not yet selected to have financial assistance from them. That’s why you will find that applying for a local loan at a bank will be much easier to get than a national or foreign bank.

Moreover, online banks have the highest rates, so even if you combine all the other prices, they will still be a little way off the interest rates the online lenders offer.

Credit Score

The credit score is an internal factor that affects your interest rates. If your business has a good credit score, the higher the chances are that you will get a loan will lower interest rates.

All lenders have different criteria for a credit score that you need to meet. For example, most banks require you to fulfill a credit score above 600, whereas some alternative lenders ask you to achieve a credit score of around 500 or so.

Business Plan

Having a business plan drafted out is crucial because this is another factor determining whether you should get a loan that offers a better deal.

Investors need to know who and why they are financing a company, so you have to make sure that your business plan is sharp and includes your goals and how you will use their money to make a profit.

Existing Finances

It can be hard for startups to receive a low-interest loan because of no history of their financial record co, which could guarantee that they can repay the loan.

If you have a stable cash flow and a good credit history, getting a loan will be much quicker. Some institutions offer loans without requiring a good credit history, such as short-term loans, but they always have a catch, which in this case is a higher interest rate.

Which One to Choose?

It can be tricky to find a suitable loan for your company. So, instead of wasting countless hours comparing interest rates of every loan available, try out a business loan interest calculator. It can easily do the job for you by comparing different loan interest rates and finding the ideal loan that might boost your business.