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Average Business Loan Rate: What to Know About Interest Costs

Understand interest costs and fees before you borrow to help choose the best loan option for your business.
Last updated on September 5, 2023

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⏰ Estimated read time: 6 minutes

The average small business bank loan interest rate ranged from 5.26% to 11.32% in the first quarter of 2023, according to the most recent data from the Federal Reserve. But rates depend on many factors.
Understanding small-business loan costs can put you in a stronger position to choose the best option and save money as a business owner. Here's what to know about business loan rates and fees.

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What are current business loan interest rates?

Loan Type
Approximate APR
Bank small-business loan
5.26% – 11.32%
Online term loan
6% – 99%
SBA loan
% –
Business line of credit
10% – 80%
Invoice factoring or financing
10% – 79%
Merchant cash advance
40% – 350%
*Rates calculated with the current prime rate of 8.5%. Updated September 2023.

What is the interest rate on a business loan?

The interest rate on a business loan is essentially how much a lender charges you for funding. Interest is usually expressed as a percentage of the amount you’ve borrowed — the higher the interest rate, the more money will be added to your original loan amount.
To find low-interest business loans, you'll want to shop around, because the following can affect the rates you're offered:
  • The lender. Bank small-business loans typically have the lowest rates but tough qualifications. Online lenders have looser eligibility requirements but cost more: Interest rates on some types of online business loans can range from 6% to 99%.
  • The loan type. Lenders offer many types of small-business loans, and rates vary by product. The best deal is often on loans backed by the U.S. Small Business Administration. SBA loan rates range from
    % to
  • Your financial situation. The lender will look at traditional business loan requirements like your credit score, time in business and business income. If you appear to be a risky borrower, the rate you're offered will likely be higher.
  • Your collateral. Lenders may offer you a better rate if you secure your loan with business collateral, such as inventory or property. This reduces the lender's risk because it can seize these assets for nonpayment.
Other factors that may influence interest rates on business loans include market conditions, the total amount borrowed and the length of the repayment period.

Is a small-business loan a fixed or variable interest rate?

A small-business loan may have a fixed or variable interest rate. With a fixed-rate loan, the interest rate and monthly payment don't change over the life of the loan, making it easier to budget for repayment.
Lump-sum term loans typically have fixed rates. This type of loan is best for one-time business purchases and long-term financing needs, like funding a major business expansion, buying real estate or refinancing debt.
A variable-rate loan may carry a lower initial rate than a fixed-rate loan, but that rate can rise or fall because it’s tied to an underlying index that fluctuates with the market. This means your payments can vary, which can make budgeting tougher.
A business line of credit may come with a variable interest rate. It allows you to borrow money and pay it back continuously, like you would with a credit card. This type of loan is better for business owners who don’t need a set amount of money, but need easy access to cash, whether it’s for emergency funds or short-term working capital.

How much are business loan fees?

Business loan fees are often unavoidable and can make borrowing more expensive. Small-business lenders charge varying amounts for upfront fees depending on factors like the size of your loan, the length of the repayment term, your credit score and the type of business loan.
When you apply for a small-business loan, your lender should be transparent about what each fee covers and explain any that you don’t understand.
Here are some common fees that may be included with a small-business loan:
  • Origination fee. An upfront fee charged for processing a new loan.
  • Underwriting fee. Fees collected by underwriters who review and verify the documents you’ve provided, including financial statements, personal bank statements, credit reports and tax returns.
  • Closing costs. Fees associated with servicing the loan such as a loan-packaging fee, a commercial real estate appraisal or a business valuation.
  • SBA loan guarantee fee. SBA loans typically come with a guarantee fee of 0% to 3.75%, based on the size of the loan. Annual service fees may range from 0% to 0.55% depending on the size of the loan. The SBA evaluates and updates these fees every fiscal year.

How to compare business loan rates

The best way to compare business loan rates is the annual percentage rate. It includes not just the interest rate, but also the associated loan fees mentioned above.
It's important to keep in mind, however, that not all lenders use an APR when quoting the cost of their products. Some lenders may give a simple interest rate — which doesn't include loan fees — that is charged on a monthly or weekly basis.
Short-term lenders and merchant cash advance providers, on the other hand, may charge a factor rate, which is multiplied by the amount of capital you receive to determine the total cost of your funding. Factor rates typically range from 1.1 to 1.5 — and often translate into high APRs.
You should always try to calculate these types of interest rates into an APR to get a better understanding of how much a loan costs. APRs also make it easier to compare products from different lenders so that you can make sure you're getting the best deal for your business.

Business loan interest rate example

For instance, let’s say you have excellent credit and get approved for a $50,000 business loan with a five-year term and an APR of 15%. On this loan, you’ll make monthly payments of $1,190 and pay a total of $21,370 in interest.
What if you shop around and get a loan offer with a lower rate? With an APR of 10%, your monthly payment would drop by $128 and you would save $7,629 in total interest costs, according to NerdWallet’s business loan calculator.