The interest rates on a business loan vary widely based on the business’s finances, industry and credit history. Great or good credit means that small business loan rates are low from 7% to 8%.
However, interest rates vary widely based on the business’s finances, lenders, and the type of loan you choose. The method of interest rates varies from business lender to business lender, making it difficult to compare interest rates for different funding types.
Knowing the average interest rate gives you a good starting point for choosing the right loan and lender.
Average business loan interest rate
According to the latest data from the Fed Bank of Kansas City, the average interest rate for new urban small business term loans in the fourth quarter of 2024 was 7.31% for fixed-rate loans and 7.61% for variable-rate loans. Rural variable loans have an average interest rate of 7.15%, while loans average 7.44% for a period of time.
These are typical starting business loan interest rates. However, please note that many lenders do not disclose the top end of the rate range. Therefore, the rates offered will be significantly higher if you are not trusted enough.
| Business loan | interest rate |
|---|---|
| Bank Business Loan | Average 7.31% to 7.61% APR* |
| Online business loan | 9.00% to 75.00% APR |
| Credit business line | Average 6.47% to 7.92% APR* |
| SBA Loan | Fixed interest rate: 13.00% to 16.00% APR Variation rate: 11.00% to 14.50% APR |
| Merchant Cash Advanced | 1.04-1.32 Coefficient Rate |
| Bad Credit Business Loan | 20% to 99%+ APR 1.03-1.52 coefficient rate |
Accurate pricing as of March 2025; *Source of average rate: Kansas City Federal Reserve Bank
What is the interest rate for a business loan?
Interest represents the cost of a business loan. It is usually expressed as a percentage of the amount borrowed added to your balance each year.
It usually shows the SME loan fees cited as an annual percentage rate (APR). The APR of the loan reflects interest as well as any fees or other fees that must be paid, such as origin and underwriting fees.
This means that while the APR on a loan is usually higher than the interest rate, it provides a more complete view of the cost of borrowing. If you know the amount, duration and interest rate of your loan, you can use your business loan calculator to understand the cost of your business loan.
However, business loans are not the subject of truth under the Lending Act. This requires lenders to show interest rates in a uniform way and include mortgage materials. As a result, business lenders can claim interest in a variety of ways, including:
| interest rate | The amount that the lender charges to borrow money. Monthly payments usually include principal and interest, which are compounded monthly or annually. Some lenders may use simple profits on business loans. Here, interest is calculated based on the principal balance at the beginning of the loan period, and cumulative interest can also be added over the long term. |
| Annual Rate (APR) | such as borrowing costs (compound interest) and other loan fees. |
| Factor rate | The cost of borrowing expressed as decimal numbers. At the start of the loan, multiply the principal by the factor rate to obtain the total repayment cost. |
| Monthly or weekly rates | Lenders will charge you a good principal percentage each week or month. This rate is not considered for compounding interest or loan fees. |
| Flat rate | This cost is the amount charged on a loan in lieu of the interests that online lenders often offer. Factor rates are examples of flat rates. |
| Discount rate | The fees charged when obtaining invoice factoring funds are often billed as a percentage of unpaid invoices. Some businesses may raise the fees the more they are unpaid invoices. |
What are coefficients?
A coefficient is a multiplier that some lenders use to calculate the cost of a loan. The lender will substitute a decimal interest rate or APR, such as 1.10 or 1.50. They are often used in short-term loans for risky borrowers and merchant cash advances.
Unfortunately, factor rates do not give the idea that they incorporate annual borrowing costs or other business loan fees. This makes it difficult to compare the loan costs of APR, APR and APR. This is because the APR represents the annual interest paid and the specific fee. When comparing different business loan types, convert the factor rate into interest rates to make sure you are getting the most affordable loans.
Are SMEs a loan variable or fixed fee?
Small business loans come with either a floating or fixed interest rate. Typically, you can choose the type of rate you will receive when you get a small business loan. Some lenders can commit to one of these two types of fees without the flexibility to choose the rate type they prefer.
A variable rate is an interest rate that can change over the lifespan of a loan. They are usually based on interest rate benchmarks and increase or decrease with the benchmark. If the rate drops, the loan can be cheaper, but if it rises it becomes more expensive.
Small business owners with variable rate loans typically pay more attention to the way the Federal Reserve adjusts interest rates. If your loan is large enough, slight fluctuations can increase or decrease your monthly payments by several hundred dollars.
Fixed-rate loans have a single fixed rate that does not change over the life of the loan. Fixed-rate loans offer predictable monthly payments, but variable-rate loan payments can fluctuate over time.
Typically term loans, equipment loans, and other lump-sum loans are fixed. Interest rates are more likely to fluctuate, such as credit cards and merchant cash advances.
Factors that can affect business loan interest rates
Many factors affect business loan rates. Some borrowers can and cannot influence.
Federal Fund Rate
Employers have no control over markets or economic conditions. The Federal Reserve sets a federal funding rate, a benchmark interest rate based on the economy. They tend to drop them when the economy is overheating or when inflation is high and the recession is upon us.
Federal fund rates could be a benchmark for other loans, so if Fed funds change, the fees paid for new business loans could change. Choosing a variety of interest rates will change your interest rates depending on the market situation over the life of your loan. At fixed rates it remains the same.
Your Business Features
Your lender will look at some aspects of your business and predict how dangerous it is to lend to you.
Some characteristics they consider are:
- year: The older your business, the lower the risk to your lender. According to the 2023 Small Business Credit Survey (SBCS), 64% of employer businesses fully approved for loans have been over 20 years. Companies between 6 and 20 years accounted for 47% of respondents, but only 48% were approved as applications. The smallest group, businesses with businesses under five years, were also fully approved by 48%.
- Revenue: Companies with more revenue and better cash flows can secure lower fees. According to SBCS, 60% of applicants with annual revenue of $1 million to $10 million have been fully approved, with 45% below $100,000.
- industry: Some industries, like foodservice, have higher failure rates, which means lenders may charge higher fees or partially approve funds. Based on SBCS, professional services and real estate are the industry with the highest approval rate at 55%, but companies in the hospitality, leisure and retail industry may be fully approved.
- Business Plan: Having a robust business plan that shows how you can use your loan to grow and how you can pay off your debt will help some lenders to fully approve your funding request and even convince you to offer a better rate.
- Credit score: It is possible to obtain a business loan with a personal credit score of 500. However, the higher your credit score, the easier it is to ensure a lower rate.
- Personal financial details: Many lenders look at your personal credit score and finances, especially if your business is young. Having strong personal credit and finances can help you secure lower fees.
Lender type
Different types of lenders offer different types of loans and have different interest rates. Applying for a business loan with the wrong lender can ultimately lead to you being costly or your application being rejected.
Traditional lenders, such as banks and credit unions, offer a variety of loan types, and their fees can vary widely. It is worth checking with your bank to see if it offers substantial transactions to borrowers with current business bank accounts.
Small banks such as regional banks provided more companies at 54% with SBCS than credit unions and major banks who fully approved 47% and 45% respectively.
Online and other alternative lenders often focus on certain types of loans and certain types of borrowers. You can find great rates from online lenders focused on companies with excellent credit. If you choose a lender that focuses on younger businesses or poor creditors, the fees can be very high. According to SBCS, online lenders are more likely to approve companies with at least some credit than other sources of lending. However, they are only 30% and are least likely to approve the funds fully.
SBA loans are supported by the federal government and are managed through both traditional and online lenders. These loans may be easier to qualify if you don’t have great credit and want a reasonable interest rate. But they have a lot of bureaucracy and paperwork. If you choose an SBA loan, don’t expect prompt approval.
collateral
Some business lenders may choose to use a secure or unsecured loan. Secured loans are supported by collateral (assets such as inventory and property) that lenders can seize by default on the loan.
A secure loan reduces the risk to lenders and leads to lower interest rates. The unsecured loan fees are higher, but no collateral is required.
How to get the best business loan interest rates
The biggest thing you can do to ensure the best business loan fees is to make sure your business looks like a low-risk borrower to lenders. It means high revenue, strong cash flow and good credit history.
Another way to display low risk is to improve your credit score. Both your personal and business credits are important. Personal credit is especially important if you run a startup or small business. Always pay your bills on time, keep your debts low compared to your income, and strengthen your credit.
However, these steps are not enough for you. Loan interest rates for small businesses may vary by lender. To find the best deal, you need to shop and compare offers from multiple lenders. Many lenders offer online prequalification tools and other ways to get quotes using only soft credit pull (it does not affect your credit score).
Even if you buy a bad credit business loan, it’s still worth comparing lenders to save money and trying to get the best loan terms.
There are some quotes and compare them to find the most advantageous rates and terms that work for you. Simply negotiate with each lender to ensure a lower rate or choose the lowest APR rate.
Another option to lower your fees is to choose a safer loan than an unsecured loan.
What is the interest rate for a good business loan?
A good interest rate on a business loan is the minimum interest rate you qualify for based on your credit profile. Ideally, you qualify for the minimum interest rate offered by your lender.
Banks and some online lenders will start interest rates by about 7% to 8%. However, if you have weak revenues or your credit profile is insufficient, you may only cover interest rates between 20% and 99%.
Either way, you want to compare loan offers from multiple lenders to find the best business loan interest rates available.
Conclusion
Lenders take into account a variety of factors when setting up small business loan rates, particularly business credit history, business time and revenue. Knowing the average interest rate may seem different on your creditworthiness, but it can guide you to the best business loan choice.
Shop to compare loan offers, consider using collateral to ensure low interest rates, and take steps to improve your credit score and get the best deal. A proper loan allows businesses to fund expensive purchases, invest in growth, and manage cash flow in a cost-effective way.
