Business Loan Interest Rates In 2024: An Updated Guide

Business loan interest rates should be your foremost consideration when selecting a financial institution to secure funds for your business. So, if you're looking for funds, do your best to choose one that offers the lowest possible rates. In this article, you'll learn about the different low-interest small business loan types and the steps you can take to get the most competitive rates.

Table of Contents
1. Current Business Loan Interest Rates
2. Factors That Influence The Interest Rates
3. How Interests Can Vary: An Example
4. How to Compare Business Loans Rates
5. How to Get the Best Rates
6. What Are Interest Rates?
7. Types of Interest Rates
8. Other Fees Lenders Charge
9. Get A Loan With Friendly Interest Rates
10. FAQs

Current Business Loan Interest Rates

The average interest rate for small business loans will vary depending on the type of loan, the lender, the loan size, and the borrower's creditworthiness. On average, the rate for a business loan is from 5% to 99% (and on certain products, even as much as 400%). That said, pinpointing a single "average" is impractical due to varying factors, like:

• Industry Standards. Business loan interest rates can vary widely across industries.
• Creditworthiness Matters. Your business's creditworthiness plays a crucial role in determining the interest rate.
• Different lenders offer different rates. Traditional banks, online lenders, and credit unions may have varying structures.
• Economic Factors. Keep an eye on broader economic trends. Changes in interest rates set by central banks can influence the rates offered by lenders.

Rates By Type Of Lender

Type of lender	Interest rates	What you should know
Bank loans	5.89% to 12.23%	It can be challenging to qualify for traditional bank loans.
Credit Unions	8.9%	With relatively low business loan interest rates, borrowers get the advantage of personalized customer service at credit unions.
Online lenders	6% to 99%	You could get reasonable interest rates if you have a healthy credit score.
Alternative lenders	Up to 400%	These high-interest rates are for alternative products that are not structured like term loans (like MCAs or payday loans).

Rates By Type Of Lending Product

Lending product	Interest rate	What you should know
Traditional term loans	6% to 99%	The rate will mostly depend on your credit score and the type of lender you choose (i.e., bank vs. online lender).
SBA loans	10.5% to 16.25%	Getting loan approval may be a long process with very stringent requirements.
Line of credit	7% to 99%	Interest rates can be high, but a business owner can access funds as needed. So, you pay interest only when you draw funds.
Merchant cash advance	40% to 400%	MCA's an expensive source of financing. Use them as a last resort only if you can't access a lower-cost alternative.
Invoice factoring	10% to 79%	You can use this option only if you have unpaid invoices.
Business line of credit	10% to 99%	It offers businesses access to a predetermined credit limit, allowing them to withdraw funds as needed.
Equipment financing	4% to 45%	This type of financing is designed to help businesses acquire the necessary equipment without requiring a large upfront payment. Minimum Credit Score Requirements

As you can see, SBA loans are the most economical type of business loan. Although not as low as government loans, term loans have very competitive terms. But certain financial products are unbelievably expensive.

Rates By Credit Score

Below is a table that outlines how interest rates for business loans can vary based on the applicant's credit score.

Credit Score Range	Expected Interest Rate (%)
720 and above	4-6%
690-719	6-8%
660-689	8-10%
630-659	10-12%
600-629	12-15%
Below 600	15% and above

Factors That Influence The Interest Rates

Type Of Lender. Not all types of lenders charge the same rates. For instance, traditional bank loans work differently from online lenders. Type Of Loan. Each type of loan charges different interest rates. Why? Because of each loan's perceived risk to the lender. Personal Credit Score. Most lenders will want to see your personal credit even if you're raising money for your business. A high score will help you get money quickly and lower interest rates. As such, those business loans affect your personal credit. Business Credit Score. Your business credit score is also critical. This score ranges from 0 to 100; anything above 76 is good. Time In Business. Most lenders will only consider your small business loan application if you meet their minimum "time in business" criteria. This happens because the older your business is, the less risky you seem as a lender. For example, many lenders require you to have a business at least 2 years old. In comparison, small business owners can apply for a loan at Camino Financial if they have an active and registered business for at least 12 months. Industry. Your business industry shouldn't usually influence the business loan interest rates. However, there are specific sectors that many lenders shun, like the gambling and speculative house-flipping industries. Make sure to check the restricted industries of your preferred lender. Repayment Term. If possible, choose a loan with a shorter repayment period. This could lower the interest rate and help you reduce the total interest you pay for the loan. The Financial Position Of Your Business. A business with sound financials will command better business loan interest rates. This can be bad news for new companies. Your Relationship With The Lender. This factor is especially relevant to loans from physical lenders. If you have a good relationship, your chances of getting a lower interest rate on your loan are better. Secured Or Unsecured. As a general rule, secured loans are cheaper. That's because the lender can seize the collateral if you don't pay. At Camino Financial, we offer unsecured loans with competitive rates. That way, you won't have to put your assets at risk. Apply for a business loan today

How Interests Can Vary: An Example

Say you're a business owner who's looking for equipment financing.

• Your credit score is north of 700.
• You've regularly made repayments against the funds you borrowed in the past.
• Plus, your credit utilization on your business credit cards is usually at 30% or less.

If this describes your situation, you can be sure that you will find raising money at a low-interest rate easy. You can go to a bank or even the Small Business Administration to get the lowest rates in the market. But what if you have bad credit? Will any lender be willing to provide you with a loan? People with bad credit can raise money. But, of course, they might end up paying a higher interest rate.

How to Compare Business Loans Rates

When assessing business loan options, comparing interest rates becomes a critical task to ensure your company secures the most favorable financing. Here are some essential steps for effectively comparing business loan rates:

1. Thorough Research: Before making any decisions, conduct thorough research on the rates offered by different lenders. Explore traditional banks, online financial institutions, and credit unions to gain a comprehensive overview.
2. Compare Rates Across Different Loan Types: Not all business loans are created equal. Compare rates across different types of loans, such as term loans, lines of credit, and Small Business Administration (SBA)-backed loans, to determine which aligns best with your business's specific financial needs.
3. Analyze Annual Percentage Rates (APR): Instead of solely focusing on nominal interest rates, consider the Annual Percentage Rates (APR). The APR includes not only the interest rate but also any additional fees associated with the loan, providing a more accurate insight into the total costs.
4. Consult Multiple Lenders: Don't limit yourself to just one lender. Obtain quotes from at least three different lenders to have comparison options. Ensure you fully understand the terms and conditions of each offer.
5. Review Repayment Terms: In addition to interest rates, examine the repayment terms of each loan. Understand the terms, payment frequencies, and any prepayment penalties. This will help you assess the financial burden and flexibility offered by different options.
6. Consider Rate Stability: Evaluate whether you prefer fixed or variable interest rates. Fixed rates provide stability over time, while variable rates may change based on market conditions. The choice will depend on your risk tolerance and expectations regarding rate fluctuations.

By following these steps, you can compare business loan rates in an informed manner and make financial decisions that benefit your company in the long run.

#CaminoTip If the lenders offer loans with a soft credit check prequalification, apply to see what interest rates they can offer you.

How to Get the Best Rates

• Improve your personal and business credit. A better score could lower interest rates. Although it can take time, it's worth trying to improve your credit.
• Provide collateral. Secured loans usually carry lower interest costs. Providing collateral could save you hundreds or thousands of dollars in interest. These loans can put your assets at risk, though.
• Consider the loan's actual cost. Some lenders offer low-interest rates but impose additional fees that increase the total cost of the loan. Make sure you ask about hidden fees before you finalize the loan.
• Avoid some types of loans. Stay away from payday loans and merchant cash advances if you can. Because they're incredibly costly, you should only use them as a last resort.

What Are Interest Rates?

The interest rate is the percentage of the loan the financial institution will charge for lending you the amount you requested. For example, say you take a loan of $10,000 for a year with an interest rate of 10%. You will need to repay a total of $11,000. The $10,000 is the principal, and the $1,000 is the interest (which translates to a 10% interest rate).

What Is The Annual Percentage Rate (APR)?

An APR tells you the total cost of the loan. It includes interest and fees and even other expenses the lender may charge. So, when comparing rates, it's better to check APRs instead of just the interest rate. That way, you'll get a clearer picture of how much you'll pay.

Types of Interest Rates

There are two main types of interest rates: fixed and variable. Fixed interest rates stay the same for the entire loan term, while variable rates can change over time. Fixed rates are typically higher when you first take out a loan, but they offer stability and predictability. If you want the stability of a fixed rate, you may have to pay a higher interest rate upfront. Variable rates may start lower than fixed rates but can increase or decrease over time. If you're willing to take on the risk of a variable rate, you may be able to get a lower rate initially.

#DidYouKnow A variable interest rate fluctuates based on an underlying benchmark rate. If the benchmark rate rises, your monthly installment goes up. If it falls, it goes down.

The problem with variable interest rate loans is that they are unpredictable. You're never sure how much you'll have to pay every month. This makes it easier to plan your cash flows. It also protects you from an unpleasant surprise in the form of a higher monthly installment. If you're looking for business financing, why don't you request a quote for a business loan with competitive terms from Camino Financial?

Should You Choose Fixed Or Variable?

Fixed Rate Loans: Stability in Payments

With fixed-rate loans, the interest rate remains constant throughout the loan term. This provides businesses with predictable and stable monthly payments. Opting for a fixed-rate loan is a choice for those who prioritize consistent payments and aim to shield themselves from market fluctuations.

Variable Rate Loans: Riding the Market Waves

Conversely, variable-rate loans come with interest rates that can change over time, often following an underlying benchmark like the prime rate. Although initial interest rates might be lower, payments can increase or decrease based on market conditions. Variable-rate loans suit businesses comfortable with some risk, seeking potential cost savings. Apply for a business loan today

Other Fees Lenders Charge

The fees associated with business loans can vary depending on several factors, including the type of loan, the lender, and the specific terms of the loan agreement. Here are some standard fees you may encounter when obtaining a business loan:

Origination Fees

These are a percentage of the loan amount. The lender charges them for processing your loan. It is usually a percentage of the loan amount, ranging from 0.5% to 5% or more.

Underwriting Fees

The lender charges these fees for checking your documents and tax returns. It can range from 1% to 3% of the loan amount.

Closing Costs

This is a term for all the fees you'll pay for a business loan. Closing costs include origination fees, underwriting fees, and loan processing fees. The amount can vary widely depending on the loan size and complexity. However, typically you can expect to pay between 2% and 7% of the loan amount in closing costs.

Sba Loan Interest Rates

Lenders pay this fee to the government but usually recover it from the borrower. As the name implies, these fees are only applicable to SBA loans. They range from 2% to 3.75%.

Late Payment Fees

You need to pay these if you delay repayments. Lenders often charge either a flat fee or a percentage of the missed payment as a late fee.

• Flat Fees. Some lenders charge a flat fee for late payments, often between $15 and $35 per late payment. However, this can vary significantly.
• Percentage of Payment. Some lenders charge a percentage of the missed payment as a late fee, typically around 2% to 5%. For example, if you miss a $500 payment and the late fee is 5%, the lender will charge you an additional $25 as a late fee.

Prepayment Fees

Some lenders charge a fee if you pay your loan early. The penalty can be a percentage of the outstanding balance or a specific number of months' worth of interest payments. (Camino Financial doesn't charge prepayment fees.)

#DidYouKnow APRs usually consider origination, underwriting, and closing fees too. That's why they're a better way to understand how much a loan will cost.

Documentation Fees

Documentation or doc fees are one-time charges associated with processing the necessary paperwork for a loan or other financial transactions. They cover the cost of preparing, reviewing, and sometimes filing the legal documents required for the loan. They can range from a few hundred dollars to over a thousand dollars.

Get A Loan With Friendly Interest Rates

Interest rates on small business loans vary widely by lender and loan type. To complicate matters further, your credit also influences the rate. And you also need to keep a watch on the additional fees that some lenders require you to pay. In short, it can get pretty complicated to choose a lender.

We invite you to apply for a Camino Financial loan.

We have very competitive and friendly rates that depend on your credit score. We offer business loans that allow you to start growing your small business. Apply for a business loan today

FAQ
What is a good interest rate? That depends. For most small business borrowers, an annual rate of 10% to 15% is good. But if you have poor credit, expect to pay more.
Which bank gives the lowest interest rate on business loans? Chase and Wells Fargo offer among the lowest interest rates in the market.
What is the average percentage rate? You should expect a 7% to 60% annual interest rate.
Are interest rates for startup loans higher? Yes, startup business loan rates are usually higher. But that's the norm: because your business is new, it's perceived as riskier.
What is the average interest rate on a commercial loan? Commercial loan interest rates generally range between 6% and 12%.
Are small business loans' interest rates fixed or variable? It depends on the type of small business loan you are talking about. For example, SBA (Small Business Administration) loans typically have fixed interest rates, while some private loans might have variable rates, and online lenders such as Camino Financial business loans have a fixed rate.
How do typical business loan interest rates work? Interest rates on business loans are generally calculated based on the prime rate. The rate banks charge their best customers. The prime rate is currently around 3%. To calculate the interest rate on a business loan, lenders will add a margin to the prime rate. The size of this margin will vary depending on the lender and the borrower.
Do small business loans have fixed or variable interest rates? Depending on the specific loan product and the lender's terms and conditions, they can have either fixed or variable interest rates.