Where to get a low-interest business loan
Banks and credit unions
Typically, banks and credit unions can offer the lowest rates on business loans — as well as long repayment terms and large loan amounts. Bank of America, for example, offers a business term loan with amounts ranging from $25,000 to $250,000 and terms up to five years. Interest rates will vary, but they can start as low as 5.75%. However, business bank loans are generally the most difficult to qualify for, and they can be slow to fund. You’ll typically need at least two years in business, strong finances and a personal credit score of 700 or higher to get one of these low-interest loans. Banks and credit unions may also require you to put up collateral to secure the loan.
Although you’ll still need strong credit and financials, an existing relationship with a bank or credit union can help you access loans with competitive rates and terms — and it may even speed up the application process.
SBA loans are partially guaranteed by the U.S. Small Business Administration and issued by lending partners, usually banks and credit unions. The government guarantee reduces the risk for these lenders, making them more likely to work with small businesses.
Although specifics can vary based on the type of loan, SBA loans generally have low interest rates, long repayment terms and large loan amounts — similar to bank loans. The most popular SBA loan program, the 7(a) program, offers loans of up to $5 million with terms up to 25 years, for example. Per SBA guidelines, interest rates on these loans are based on the market prime rate, plus a markup rate known as the spread. Currently, interest rates on SBA 7(a) loans can range between
Compared to bank loans, SBA loans may be somewhat easier to qualify for, but in most cases, you’ll need good credit, solid finances and a few years in business to get financing. These loans are also slow to fund, taking anywhere from one to three months to complete the application and funding process.
If you’re looking for an expedited option, the SBA Express loan can offer loans up to $500,000. Once your lender approves the loan, the SBA aims to respond to applications within 36 hours.
Some online lenders can offer low-interest business loans. And with streamlined application processes, certain lenders can offer financing in as little as three business days.
For instance, Funding Circle offers term loans up to $500,000 with a repayment period up to seven years. You can complete the entire application online, work with an account manager to explore your options and receive funding in just three days. Interest rates will depend on your business’s qualifications, among other factors, but they generally range between
Typically, online lenders have more flexible requirements than bank or SBA loans. However, to qualify for the lowest rates and most competitive terms from an online lender, you’ll need to be an established business with good credit and strong finances.
Of course, there are online lenders that are willing to work with newer businesses or those with fair or bad credit. Note though, that interest rates on these loans can range significantly — anywhere from 7% to 99% — so you should always compare several different financing options and think carefully about how much debt you can realistically afford.
Nonprofit organizations and microlenders
Nonprofit organizations and microlenders may offer low-interest loans to small businesses in their communities. Depending on the lender and products offered, loan amounts can be smaller and interest rates may be higher than bank or SBA loans, but these lenders can be a good option if you can’t qualify for those types of funding.
Nonprofits and microlenders tend to focus their lending efforts on traditionally underserved businesses, including women- and minority-owned businesses and those located in low-income communities. Some organizations also work with startups or businesses with bad credit (a score of below 630).
For example, CDC Small Business Finance is a nonprofit that specializes in financing for new and underserved businesses in Arizona, California, Nevada, Detroit and Washington, D.C. Loans range from $20,000 to $250,000, with terms from five to 10 years and interest rates ranging from 5% to 9.25%.
How to get a low-interest business loan
1. Evaluate your qualifications
For most low-interest business loans, you’ll need to meet strict eligibility criteria in order to qualify. In general, you should be able to meet the following requirements:
Credit score: 650 or higher.
Time in business: Two years or more.
Annual revenue: $100,000 or more.
Specific business loan requirements will vary based on your lender and loan type, however. Typically, bank loans will be the most difficult to qualify for, followed by SBA and online loans.
2. Research your options
Once you have a better understanding of your business’s qualifications, you can research and explore different small-business lenders. You’ll want to consider the loan types offered, interest rates, repayment terms, maximum loan amounts and funding speed among other factors.
If you can qualify, a bank or SBA loan will likely offer the lowest interest rates and most competitive repayment terms. However, both of these types of loans will require a detailed application and will be slow to fund.
Online loans will be a worthwhile alternative if you want faster financing and a streamlined application process.
3. Compare loan offers
You should always compare multiple loan offers to make sure that you’re getting the best deal for your business — especially when you’re looking for the lowest interest rate.
The best way to compare business loan rates is to use the annual percentage rate, or APR. This number includes your interest rate, as well as additional loan fees.
Not all lenders express the cost of their financing as an APR, however. Some may use a simple interest rate or even a factor rate. In this case, you’ll want to calculate the rate into an APR so that you can get a better understanding of how much the loan costs and how it compares to other options.
Alternatives to low-interest business loans
If you can’t qualify for one of these low-interest business loans — or you simply want to explore alternative options — there are other types of affordable financing you can consider. Here are a few possibilities.
Small-business grants are essentially free financing, since you don’t have to repay the money you receive. Grants can be a particularly good option for businesses focused on technology, research and development, and projects in their local community.
However, finding and applying for business grants is often time-consuming and competitive, so this type of financing may not be suitable for all businesses.
If you have good personal credit, but you're just starting your company, you might use a personal loan for your business. Instead of relying on your time in business and revenue, personal loan providers will focus on your income and personal credit history.
These loans also tend to have lower APRs than many online alternative lenders, but defaulting on them could hurt your personal credit score and put your assets at risk.
Business credit cards
Business credit cards are a good option for financing recurring or everyday purchases. You can use your credit card to pay for business expenses, plus you can earn rewards — like cash back — for your spending. You’ll want to make sure that you can pay your bill every month, however. Otherwise, you’ll start accumulating interest on your balance.
To qualify for a business credit card, you’ll typically need good personal credit, but you don’t need to have an established business history.
Find the right business loan
The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose.
If you’re still trying to find the right fit for your needs, check out NerdWallet’s list of best small-business loans to see and compare additional types of financing.