Current Small Business Loan Rates

Running a small business in today’s economy can be challenging, but with dedication, persistence, and hard work, it can be rewarding. However, sometimes you may need additional funding to meet your goals and see your vision through.

What is the average interest rate for small business loans?
Business loan interest rates fluctuate based on several factors including funding type, loan size, lender, and the credit history of both the borrower and the lender. Generally, bank loans boast some of the most competitive interest rates in the market. However, securing a bank loan involves rigorous eligibility criteria, including a minimum operational history, robust business and personal credit scores, a specified annual revenue threshold, extensive documentation, and potentially collateral, all contingent upon individual circumstances. Consequently, due to these stringent prerequisites, not every small business meets the criteria to access this type of financial capital.

Small Business Administration (SBA) backed loans offer favorable interest rates to small businesses as they are federally guaranteed. This unique assurance enables SBA-approved lenders to extend funding to small businesses that might not meet the standard loan qualifications otherwise.

Some SBA loans, like the Paycheck Protection Program (PPP) loans initiated during the COVID-19 stimulus, can be forgiven if businesses fulfill specific criteria. To stay updated on PPP loans, check out our blog covering the latest program updates.

On the other hand, most other non-federal and/or non-SBA business loan interest rates depend on a variety of specific factors, such as the type and terms of the loan, the business’s financial history and the lender.

What is the minimum amount of money required to fund my small business?

The amount of working capital required by a small business to cover day-to-day operations is dependent on several factors, such as equipment, inventory, and payroll costs, monthly revenue, and other expenses. Startups typically have many one-time, up-front costs based on details like the specific industry, type of business, local and/or federal regulations. According to recent reports, the cost of starting a microbusiness can vary widely, but it is estimated to be around $3,000. On the other hand, home-based small businesses can cost anywhere between $2,000 and $5,000. It’s important to note that the maximum business loan amount that startups and other small businesses may qualify for varies based on details like the credit type, the borrower’s personal credit history, and the lender.

Typical Interest Rates for Popular Business Financing Options

Interest rates fluctuate based on the type of business loan, borrower eligibility, and the chosen lender. Here's a rundown of typical business financing options and their respective interest rate ranges for qualified borrowers:

Bank Loan Rates

Bank loans for businesses commonly offer competitive interest rates, often among the lowest available. Yet, accessing these loans involves stringent criteria such as minimum annual revenue, a specified operational history, and robust personal and business credit scores. This option demands substantial paperwork and typically has a longer processing time compared to online lenders. Interest rates for bank business loans vary based on factors like the lender, loan terms, payment history, and loan amount, ranging approximately between 2% to 13%.

SBA Loan Rates

SBA-approved lenders can offer small businesses low-interest rates due to the federal guarantee, enabling access for those who might not meet traditional loan qualifications. Federal regulations establish the maximum interest rates for SBA loans. Presently, considering the prime interest rate set at 3.25%, the following SBA loan categories from any SBA lender hold these maximum interest rates:

Variable loans less than 7 years:

$25,000 or less: Prime Interest Rate + 4.25%
$25,001 — $50,000: Prime + 3.25%
Over $50,000: Prime + 2.25%

Variable loans longer than 7 years:

$25,000 or less: Prime + 4.75%
$25,001 — $50,000: Prime + 3.75%
Over $50,000: Prime + 2.75%

To access details about the present SBA maximum interest rates based on loan products, refer to the chart provided.

Regarding the nature of SBA loans, PPP loans hold a unique status as they are fully forgivable provided specific criteria are met. Conversely, standard SBA loans do not qualify for complete loan forgiveness. In cases where PPP loans are not forgiven, they bear a 1% interest rate.

Term Loan Rates

Business term loans, commonly known as "small business loans," are available through diverse funding channels like online lenders and banks, offering a broad spectrum of principal amounts. The repayment conditions, fees, and additional costs associated with this capital type tend to differ among lenders. Typically, term loans entail repayment within months or years, albeit the duration might vary based on the borrowed amount. Interest rates for online term loans can fluctuate significantly, often ranging between 7% to 100% or higher, contingent on various factors. These factors include the lender, the borrower’s personal and business credit scores, and the agreed-upon repayment terms.

Business Lines of Credit Rates

Business lines of credit offer a revolving source of capital, granting reusable access to funds up to a predetermined credit limit. As funds are repaid, they become available for future borrowing. While akin to business credit cards, business lines of credit usually don't extend as high a credit limit as other funding methods.

Business lines of credit can be obtained from various sources including banks, credit unions, and online lenders. The interest rates associated with this funding type vary based on factors like the lender, the borrower’s repayment history, and the established credit limit. Generally, small business borrowers might encounter interest rates ranging approximately from 3% to 80%, subject to the specific terms and conditions of the agreement.

Business Credit Card Rates

Business credit cards operate as a revolving credit option, offering access to funds up to a predetermined credit limit. These cards are obtainable from various sources including credit card companies, banks, and credit unions. However, certain lenders might necessitate an established business credit history and other specific application prerequisites for this financing option.

Interest rates associated with business credit cards are influenced by several factors. On average, the current interest rate for business credit cards is approximately 17%, although actual rates can fluctuate based on individual circumstances and lender-specific terms.

Additional charges and expenses related to small business loans.

Absolutely! When considering small business funding options, it's crucial to recognize that while the interest rate holds significance, it's not the sole fee you might encounter. Various other fees can be associated with a small business loan, including charges related to usage, account maintenance, or the application process. Evaluating these additional costs alongside the interest rate is essential for a comprehensive understanding of the overall financial commitment tied to a business loan.

• Guarantee fee: This fee is associated with specific SBA loans and is designed to help recover lost funds from late and delinquent borrowers.
• Application fee: Some creditors require an application fee for any prospective borrower, regardless of loan application approval.
• Origination fee: An origination fee is sometimes levied when a borrower initiates a business account, which might encompass the application fee.
• Prepayment penalty: Additionally, certain creditors might impose a prepayment penalty if the borrower settles the loan before the scheduled full term. Opting for lenders without prepayment penalty fees can help avoid extra expenses associated with your small business loan.

What are some ways to increase the likelihood of obtaining a small business loan?

Small business loans come in different types, each with varying application and borrower requirements. To find the best loan for your needs, it’s important to understand what areas are most important to business creditors. This knowledge will help you qualify for the loan that suits your needs best.

Elements that can influence a company’s capacity to obtain a loan.

Indeed, most creditors assess a potential borrower’s Five Cs of Credit when evaluating credit requests. If your company doesn't currently meet the criteria for a small business loan, enhancing your business’s financial standing in these areas can improve your likelihood of securing a loan in the future:

• Character: Character signifies a business's creditworthiness, primarily gauged through its payment history. Elevating both your personal and business credit scores can substantially bolster this aspect of a loan application.
• Capacity: Capacity, often synonymous with cash flow, evaluates a borrower's capability to repay a loan considering the funds available within their business. Sustaining a positive cash flow demonstrates your ability to meet loan repayments and positions you as a reliable client for lenders. Additionally, requesting a smaller loan principal can also aid in enhancing your business's financial capacity.
• Capital: Capital refers to the amount of money that a small business owner invests in their own company. A higher level of self-investment can demonstrate to lenders that you are committed to putting in the effort required to run a successful business.
• Condition: Condition refers to how a business intends to utilize funds, in addition to its overall financial well-being. Lenders are interested in knowing whether your company is looking to expand and grow, or if a small business loan is simply a means to keep your company afloat for another week. It is important to demonstrate to lenders that your company has a good chance of remaining in business for the foreseeable future.
• Collateral: Collateral serves as a security measure for lenders in the event a borrower defaults on a business loan. Offering substantial financial collateral upfront can mitigate risk for creditors, potentially enhancing the likelihood of securing a small business loan at a more favorable rate.

How to Get the Right Small Business Loan for Your Needs

Absolutely, low-interest rate loans often come with stringent qualification criteria and lengthier processing times compared to other funding options. Before applying for any business loan, it's crucial to thoroughly examine the application requirements, as well as the rates and terms of the product. This information is usually accessible on a lender's website, providing essential insights for informed decision-making.