looking glass zooming in on business loan interest rates
By: rkapur
Read in 17 minutes

Average Small Business Loan Interest Rates in 2022

How do you choose a lender when you need funds for your business? Most entrepreneurs would say that their primary consideration in selecting a financial institution is the business loan interest rates. 

And they would be right.

So, when you’re looking for a small business loan, you should do your best to choose one that offers the lowest rates.

We’ll tell you all about the different types of low-interest small business loans and the steps you can take to get the most competitive rates.

Get A Loan With Friendly Interests!

 

calculator with the word INTEREST

What Is The Interest Rate On A Business Loan?

The interest rate is the percentage of the loan that 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). 

#DidYouKnow
High interests can do irreparable harm to your company. They lower your profitability and drain your cash flow. 

Average Business Loan Interest Rate

The small business loan interest rates depend on the lender you choose. However, a typical business loan interest rate can be anywhere from 3% to 50% per year.

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 actually pay.

dollar bill with Business Loan Interest Rates cubes

What Are Current Business Loan Interest Rates?

You can find interests from as little as 3% and as much as 400%. To help you better understand why there’s such a big gap, we’ve divided current interest rates into 3 different categories:

bank icon

Rates By Type Of Lender

Here are the average interest rates charged by different types of lending institutions.

Current business loan interest rates charged by different types of lenders
Type of lenderLoan interest ratesWhat you should know
Bank loans3% to 13%It can be challenging to qualify for traditional bank loans.
Credit Unions8.9%With relatively low business loan interest rates, borrowers get the advantage of personalized customer service at credit unions.
Online lenders7% to 100%If you choose one of the best online lenders, you could get reasonable interest rates. For example, Camino Financial has interest rates starting at just 12%.
Apply with Camino Financial!

dollars icon

Rates By Type Of Lending Product

Average business loan interest rates can vary wildly between different lending products. 

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.  

Current business loan interest rates on different types of lending products
Lending productAverage interest rateWhat you should know
Term loans3% – 99%The rate will mostly depend on your credit score and the type of lender you choose (i.e., bank vs. online lender).
SBA loans5.5% to 8%Getting loan approval may be a long process, and it has very stringent requirements.
Line of credit10% 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 advance40% 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 factoring10% to 79%You can use this option only if you have unpaid invoices.
Startup loans33% to 35%Camino financial’s Startup loans are an excellent way to fund a new business.

credit score icon

Rates By The Credit Score Of The Borrower

The business loan interest rates that you’ll pay also depend on your credit score

High credit scores lead to a reasonable interest rate for business loan applicants. 

But if you have a low score, watch out! Small business lenders will typically charge you a higher loan interest rate. 

How your credit score can affect business loan interest rates
Credit score rangeAverage interest rate
780-8504.5%
760-7794.7%
700-7594.9%
660-6995.1%
640-6595.5%
620-6396.1%

calculator, dollars and documents

Why Do Interest Rates Vary? Other Factors That Influence Business Loan Interest Rates

You’ve probably noticed that several factors influence interests. But the type of loan, the lender, and your credit aren’t the only factors affecting these rates. 

Let’s get a quick look at all the factors that can affect a loan’s interest rates:

Lender Type

As you may have noticed in the previous section, not all types of lenders charge the same rates.

Type Of Loan

Each type of loan charges different interest rates. Why? Because of each loan’s perceived risk.

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.

Camino Financial is a lender willing to help applicants with no credit scores (or even bad scores, depending on the situation).

Business Credit Score

Your business credit score is also very important. This score ranges from 0 to 100, and anything above 76 is a good score. 

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 lendee.

For example, at Camino Financial, you can apply for a loan if you have been in business for at least nine months.

Industry

The business industry you operate in shouldn’t usually influence the business loan interest rates. However, there are specific sectors that many lenders shun. The gambling industry and speculative house-flipping are some examples.

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.

At Camino Financial, we have repayment terms from 24 to 60 months.

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.

Fortunately, lenders like Camino Financial, help startups too.

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 has the right to 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.

As you can see, at Camino Financial, we are more lenient with our requirements to help small business owners thrive.

Get Approved For A Loan Today

How Interests Vary: An Example

Now let’s understand how a lender arrives at an interest rate with an example. 

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

  • Your credit score is north of 700.
  • You’ve been regular in making repayments against the funds you’ve borrowed in the past.
  • Plus, your credit utilization on your business credit cards is usually at a level of 30% or less.

If this describes your situation, you can be sure that you will find it easy to raise money at a low-interest rate. 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? 

It’s possible for people with poor credit to raise money. But of course, you might end up paying a higher interest rate.

different sized dollar stacks

Do Small Business Loans Have Fixed Or Variable Interest Rates?

When taking a business loan, you must ask if it carries a fixed or variable interest rate.

Let’s take a moment to understand the difference between the two:

  • Fixed interest rate loan: If a loan has fixed rates, the interest rate remains the same during the life of the loan.
  • Variable interest rate loan: The 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. 

At Camino Financial, the term loans we offer carry fixed rates. As a result, you know exactly how much interest you need to pay. 

This makes it easier to plan your cash flows. It also protects you from getting an unpleasant surprise in the form of a higher monthly installment.

If you’re looking for capital for your company, why don’t you request a quote for a business loan with competitive terms from Camino Financial? 

Apply For A Business Loan!

How To Get Lower Interest Rates

You can do several things to get the lowest interest rates on your loan. Here’s a quick list of things you should know:

  • Improve your personal and business credit. Earlier, we told you how a better score could lower interest rates. Although it can take time, it’s definitely worth making an effort 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.

conceptual image with numbers and graphics

How To Compare Business Loan Rates

It’s advisable to approach at least three different financial institutions. Then, you should compare their interest costs before selecting a lender. 

Like we previously mentioned, the best way to find the best loan is not by comparing interest rates but by comparing APRs.

Make sure to research the APRs of the lenders you selected. If the lenders offer loans with a soft credit check prequalification, apply to know what APR they can offer. 

Business Loan Interest Rate Calculator

Another great way to see how much the loans will cost is to use a business loan calculator. 

You could use our Business Loan Calculator to find the actual cost of each of the loans you’re considering. 

Key in the loan amount, the period over which you want to repay, and the monthly interest rate. Click on the “Calculate” button, and the Business Loan Interest Rate Calculator will immediately provide a table with complete details about the proposed loan. 

Term Loan Calculator


Other Loan Fees To Consider

A business loan can involve one or more of the following fees:

  • Origination fees. These are a percentage of the loan amount. The lender charges them for processing your loan.
  • Underwriting fees. Fees charged for checking your documents and tax returns.
  • 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.
  • SBA loan guarantee fee. Lenders pay this fee to the government but usually recover it from the borrower. As the name implies, these fees are only applicable on SBA loans.
  • Late payment fees. You need to pay these if you delay repayments.
  • Prepayment fees. Some lenders charge a fee if you pay your loan early. (Camino Financial doesn’t charge prepayment fees.)

APRs usually consider origination, underwriting, and closing fees too. That’s why they’re a better way of understanding how much a loan will actually cost.

small business owner calculating interest rates

Get A Loan With Friendly Average 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: from 12% to 40%

With us, you can get from $5,000 to $400,000, and applying won’t affect your credit score. Request a quote for a business loan and start growing your small business. 

Apply now!

 

FAQs

What is a good business loan interest rate?

That depends. For most small business borrowers, an annual rate in the region 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 on a business loan?

You should expect to pay a 7% to 40% 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. 

 

Check if you
qualify for a loan

LEARN MORE