When it comes to financing a small business, understanding the interest rates associated with different loan products is essential. Interest rates on commercial loans can range from a low 3% for a traditional bank to 150% for alternative lenders.
SBA 7 (a) loans, one of the most affordable commercial loan products available today, have loan rates that range from 6% to 8%. It can be difficult to get approved for a business loan when you're just starting out, as traditional banks and the SBA generally require that you be in business for at least two years.
It's important to consider and analyze all facets of your business and financial needs in consultation with a professional before implementation. Business loan rates are complicated not only because lenders can express them in different ways, but also because they're just one part of determining the true cost of a loan. If you're looking to get small business loans to start or expand your business, you need to know what the average interest rate on business loans is, since that will affect what you pay overall. There are several types of lenders available, including large national banks, small community banks and credit unions, online banks, microlenders, and more. The Paycheck Protection Program (PPP) is available to small businesses, including independent contractors, self-employed workers, and sole proprietorships. While there's a general range of average interest rates for commercial loans that you can expect to see for each credit product and lender, the exact cost of a loan will vary from one borrower to the next.
Fees are not included in the interest rate but are part of the annual percentage rate (APR) calculation and can increase the total cost of the loan. Factor rates are another way in which lenders quote commercial loan rates and are a little different from typical interest rates. If you run a for-profit business, you may qualify for a 7 (a) business loan in the eyes of the SBA. Many business loans, especially SBA loans and bank loans, derive their interest rates from the market's prime rate. We've reviewed the average interest rates on business loans based on different types of loans and lenders, as well as how your interest rate will be determined.
Average small business loan rates will vary depending on the lender and the type of loan, and the lowest rate may not always be the best for your company's specific needs. Some alternative products such as cash advances for merchants or invoice factoring will have a higher APR than traditional options such as bank or SBA loans. If your business has been affected by a disaster, you may be eligible to apply for a long-term, low-cost loan for physical or economic damage. If your business is new (less than two years old) or you're financing a special property, you may have to pay a higher percentage of the cost.