Variations in Business Loan Interest Rate

A business loan is a borrowed amount of money from banks, get by companies when they are unable to bear business expenses on their own. At some point every business needs capital, there is no shame in getting business loans. Companies return this money over a period of years according to loan terms & conditions defined by the bank.

Business Loan Interest Rate:

The interest rate is a key factor that you should consider while getting a business loan. The interest rate depends on how much amount of money you want. Interest rate is different for traditional lenders such as banks, they have annual percentage rates (APRs) ranging from 4%- 13%.  While for alternatives or online lenders (APRs) ranging from 7% – 90%.

Business Loan Interest Rate by Loan Type:

Interest rates are a very important factor when you are borrowing loans for your small business. Here is a list of loan types and interest rates. Interest rates are mentioned in “average percentage rates” APRs.

Loan TypeTypical APRs
Bank Term Loan4% – 13%
LINE OF CREDIT8%81%
SBA 7(a) Loan 6.3%-10%
Merchant Cash Advance20% – 250%
Online term Loan 7% – 99.8%
Invoice Factoring13%-60%

Note: SBA stands for “Small Business Administration”.

Average Business Loan Interest Rate by lenders:

The average loan interest rate for conventional small business is about 6.65%-10.25%.  But it can vary for different vendors, depend on the business loan type. According to the Small Business Administration (SBA) average business loan interest rate is 4.39%- 4.70%.

Lender TypeAIR AIR for SBA
Small National & Regional banks2.49% to 5.41%5.98
Large National Banks2.54% to 5.17%6.28%
Online & Alternative Lenders13.00% to 71.00%4.39% to 7.01%
Foreign Banks1.45% to 5.77%7.15%

Note: AIR is the abbreviation of “Average Annual Interest Rate”.

Good Business Loan Interest Rate:

There is no “good rate” for everyone. It depends on what kind of financing you are looking for and many factors, i-e lender type, business loan type, borrower’s eligibility criteria, and tenure, etc.  But a good business loan interest rate is 4% to 6%. Most banks offer business loans in this range. Compare to banks online lenders have a large interest rate, could be 100%, because they have low eligibility criteria and provide fast cash.

Fixed and Variable Interest Rates:

A fixed interest rate is the type of interest rate which remains the same throughout the period of tenure which is less risky. While the variable interest rate is the type of interest rate which can vary monthly or quarterly according to benchmark rates. The Wall Street Journal prime rate and LIBOR rate and most famous benchmark rates.

Simple and Compound Interest Rate:

A simple interest rate considers few factors to count Interest rate. Its simple formula is:

Principal * interest rate * loan term (in years) = Simple Interest rate.

While compound interest rate counts on little more factors. Its formula is:

Interest rate * principal= interest on 1st payment

Interest rate * (principal + unpaid interest) = interest for remaining repayments.

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