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Small business loan interest rates

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Money and finance are a big part of small business. You have to have cash flow to survive in business. When you run into cash flow problems, you have to be able to get some funding to help you through. This funding typically comes in the form of a loan. Understanding the business loans that are available to small businesses, and the interest rates that come with them is very important. The following is a summary of the various small business loan types, and the typical interest rates they carry. While the list is not totally inclusive, it does cover the basics of the loans available to most small business owners, and will allow you to see what kind of spectrum there is in the loan interest rate world.

• 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%
As you can see, the range is wide, even sometimes amongst the same loan type. For example, a peer to peer loan could be as low as 6% interest rate, but it could also be as high as 36%. Once you understand the typical interest rates that accompany the various loan types, it is important to understand some of the factors that can impact these rates.

One of the first factors that can impact a business loan interest rate is whether or not the loan is secured. A secured loan will almost always carry a lower interest rate than an unsecured loan. This is because the business puts up some form of collateral in order to lower their risk. An unsecured loan will only be given based on credit, which means that the business needs good credit. The better the credit is, the better chance they have of a lower interest rate.

The next factor that can impact the interest rate of the loan is the term. How much time does the business have to pay off the loan? What terms are in place? Loans like lines of credit, that are revolving loans, and are not a term loan, with a set payoff plan, and payoff date, typically carry higher interest rates than long term loans.

Another factor that will determine the interest rate of the loan is the lender, and the credit worthiness of the borrower. While this is something most people understand to some degree, it is worth mentioning that a lender that specializes in a particular loan type, may offer lower interest rates than another lender that has a wider variety of loan products available to small businesses.

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Posted by DK
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