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Small business loan interest rates

Business loans are a necessary part of business success. All businesses need funding in order to succeed in the marketplace. They have to have the money to purchase needed supplies, maintain retail locations, pay employees, advertise, etc. In addition there are costs like equipment, expansion, etc. to consider. Thus, the ability to get a loan, and pay for a loan is crucial.

The one thing all loans have in common is that they carry interest. However, the interest rate is going to be determined by a number of different factors. The following is a look at the different contributing factors to the interest rate you get with the business loan you get.

The loan type- There are all kinds of business loans available, from government backed SBA loans to loans only offered to professional doctors, lawyers, and dentists. These loans all carry their own set of interest rates, which are flexible depending on the borrower, but tend to fall within certain parameters. The following is a brief look at some of the common business loan types, and typical interest rates for these loan types.
- SBA loans- 5.8-8.5%
- Accounts receivable factoring loans- 10-15%
- Merchant cash advance- 18-22%
- Start-up loans 5-7.5%
- Franchise start up loans 10-30%
- Business acquisitions- 4.75%-7.5%
- Line of credit- 5-24%
- Professional loans- 5-10%
- Equipment financing- 8-25%
- Construction financing- 7-8%
- Hard money equity loan- 15-30%
- A/R or P.O. Financing- 8-30%
- Peer to peer loans- 6-36%

Secured or unsecured- The next consideration with loan interest rate is whether or not the loan is secured. Loans that have collateral as security tend to carry lower interest rates than loans without collateral. This means that you put something at risk, but pay less as a result. Unsecured loans, which are based on credit worthiness, carry the higher interest rates, but should you fail to repay the loan, nothing but your credit score is at risk.

Credit worthiness- Even if you go with a secure loan option, your interest rate is going to be affected by how good your credit is, and what kind of risk you pose to the bank. A business with a historical cash flow, a long credit history, and a good credit history would be afforded lower interest rates then a new business or start up. Thus, maintaining a good credit score, and creating business and personal credit are important for not only getting funding, but getting affordable funding.

The loan interest rate determines the cost of the loan. For some loans, like lines of credit, the interest is only paid on the amount withstanding, meaning that even if you get a $50,000 loan, and you only use a few thousand, you only pay interest on a few thousand. The interest is calculated monthly, so if you pay your balance off in full each month, there is no interest.

Small business loan interest rates vary greatly, so take this into consideration, and carefully consider the loan type that will best work for your business.

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