Business Loan Interest Rates In 2023: 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 small business loan interest rates
2. Minimum credit score requirements by loan type
3. How to compare business loans rates
4. Factors that influence business loan interest rates
5. How interests can vary: An example
6. How to get the best rates on a business loan
7. What are interest rates?
8. Types of interest rates
9. Other fees lenders charge
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. However, you can find current business loan rates from as little as 5% and as much as 400%.

Rates By Type Of Lender

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

Current business loan rates charged by different lenders
Type of lender	Interest rates	What you should know
Bank loans	5.11% to 10.46%	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 60%+	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

Typical business loan 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 for different products
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.

Minimum Credit Score Requirements by Business Loan Type

Understanding the acceptable credit score ranges specific to each business loan type is also essential. The following list outlines the credit score requirements that most lenders typically require based on personal credit:

How to Compare Business Loans Rates

It's advisable to approach at least three different financial institutions. Then, you should compare their interest costs before selecting one. As we previously mentioned, the best way to find the best loan is not by comparing interest rates but by comparing APRs. So make sure to research the APRs of the lenders you selected.

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

Factors That Influence Business Loan Interest Rates

Let's get a quick look at all the factors that can affect a loan's 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 nine 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. At Camino Financial, we have repayment terms from 24 to 36 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 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 Get the Best Rates on a Business Loan

• 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.

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 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? 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 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 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. With us, you can get up to $35,000. We offer business loans that allow you to start growing your small business. Apply for a business loan today

FAQs
What is a good interest rate on a business loan? 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 on a business loan? 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.
What are the average business loan interest rates for good credit? The average business loan rates in the United States are between 4% and 6%. However, this range varies depending on the type of lender.
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.