⏰ Estimated read time: 9 minutes
Key takeaways
- Average business loan interest rates range from 6.42% to 12.41% at banks. Online loans may have higher rates.
- Bank and SBA loans tend to offer the lowest interest rates, but require strict requirements to qualify.
- Factors that can affect your business loan rate include the loan type, your lender, your business’s qualifications and the collateral you offer.
The average small-business bank loan interest rate ranged from 6.42% to 12.41% in the second quarter of 2024, 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 | 6.42% to 12.41% | |
Online term loan | 6% to 99% | |
SBA loan | Variable: 10.75 % to 14.25 %* Fixed: 12.75% to 15.75% | |
Business line of credit | 10% to 99% | |
Equipment financing | 4% to 45% | |
Invoice factoring or financing | 10% to 79% | |
Merchant cash advance | 40% to 350% | |
*Rates calculated with the current prime rate of 7.75%. Updated December 2024. | ||
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.
Typically, business lenders will quote interest as an annual percentage rate, or APR. APR illustrates how much you’ll pay to borrow money over one year, including both interest and fees (e.g. origination fees, underwriting fees, closing costs). As a result, the best way to compare business loan rates is using an APR.
However, not all lenders use an APR when quoting the cost of their products. Some lenders may use:
- Monthly or weekly interest rate. Interest is charged as a percentage on the outstanding principal each week or month. This does not include loan fees.
- Factor rate. Short-term lenders and merchant cash advance providers 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.
- Factoring fees. Also called discount rates, factoring fees are charged as a percentage of an unpaid invoice. Used in invoice factoring, these fees typically range from 1% to 5% of the invoice value per month.
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.
MORE NERDY PERSPECTIVE
What does the Fed rate cut mean for business loan interest rates?
"In September and November, the Federal Reserve announced its first two rate cuts since March 2020. When the Fed lowers interest rates, business loan rates tend to decrease as well.
As a result, you may be able to get a loan with lower borrowing costs.
For example, in August, a $500,000 SBA 7(a) loan had a maximum allowable fixed rate of 13.5%. This means that over a 10-year term, you would pay a total of $413,645.73 in interest.
With the Fed rate cuts, the maximum interest rate on this loan is 12.75%. Although 0.75% seems like a small difference, it actually saves you $26,606.93 in interest costs."
Randa Kriss,
lead writer,
Small Business
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.
Factors that affect business loan interest rates
Several different factors impact the interest rate you’ll receive on a business loan. Understanding these factors — and how you can control them — will help you qualify for the lowest interest rates:
- 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 from10.75% to14.25%.
- 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.
How to get the best business loan interest rate
To get the most competitive interest rates on a business loan, you’ll want to show the lender your business’s strengths and prove that you’re a low-risk borrower. Borrowers with good credit, strong finances and multiple years in business typically can access the lowest rates.
Here are some tips to help you get the best rate for your business loan:
- Improve your credit. You can improve your personal credit by identifying errors on your credit reports and disputing them with the appropriate credit bureau, making debt payments more frequently and paying down or paying off debt. In general, the higher your credit score, the better interest rates you’ll receive.
- Offer collateral. Securing a business loan with physical collateral, like equipment or real estate, can often help you access lower interest rates. Providing collateral (especially when it’s not required) can also help startups and borrowers with lower credit scores qualify for financing.
- Add a cosigner. If you’re a newer business — or have bad credit — adding a cosigner to your business loan may help you access affordable loan options. Your cosigner should have a strong credit and financial history.
- Provide a thorough business plan. Including a detailed business plan with your loan application can give the lender more confidence in your business, and therefore, help you qualify for the most competitive rates. Your business plan should show that you have a solid business model, a profitable market for your products or services and financial projections to prove your creditworthiness.
» Learn more about getting the best business loan rates.
Frequently asked questions
Business loan interest rates typically range from 6% to 99% APR. According to the most recent data from the Federal Reserve, average rates on business bank loans fall from 6.42% to 12.41%. Ultimately, the interest rate you receive will depend on the loan type, lender and your business’s qualifications, among other factors.
A good rate on a business loan can range from 6% to 17%. You may find higher rates, however, on some online loans, especially if you’re a startup or borrower with bad credit.
In some cases, business loans may have higher interest rates than personal loans. Personal loan rates typically range from 6.99% to 35.99% — although they can reach as high as 300% in some states. Unlike business loan rates, maximum personal loan rates are restricted by a state’s usury laws.
Ultimately, the rate you receive on a business or personal loan, however, will depend on the loan type, your lender and your qualifications.
» Learn more about how business loans compare to personal loans.