Business loan rates explained

What is a typical business loan rate?

A typical rate depends on who is lending. Banks and credit unions charge the least, typically 7% to 12% APR on term loans and lines. SBA loans are priced off the prime rate plus a spread the SBA caps, so they move with prime. Online lenders charge 10% to 60% APR for faster decisions and looser criteria.

Equipment and real estate loans are cheaper than unsecured loans of the same size because the asset backs them. Cash advances are not quoted as a rate at all; they use a factor rate, and the equivalent APR is usually in the triple digits for short terms.

What decides the rate you are offered?

Six things set your rate: lender type, personal credit score, time in business, revenue and cash flow, collateral, and the term. Credit and time in business matter most at banks. Deposits and cash flow matter most online. Collateral lowers the rate on any product.

Industry matters too; restaurants, trucking and construction typically pay more than professional services. Very small loans carry higher rates because the lender's cost to underwrite is the same, and large loans get competitive pricing. Existing debt raises your rate or ends the conversation, since a stacked file is the one thing most lenders refuse. Business loan requirements shows which bars apply to each lender.

Fixed or variable: which should you choose?

Choose fixed when you want a payment that never changes and you plan to keep the loan for years. Choose variable when the rate starts lower, you expect to repay early, or the loan is tied to prime like most SBA 7(a) loans. A variable rate resets with prime, usually quarterly, so a two point rise in prime adds two points to your rate.

Most online term loans and equipment loans are fixed. Most lines of credit, SBA 7(a) loans and bank commercial loans are variable, sometimes with a floor and a cap. Ask what the index is, how often it resets, and whether there is a ceiling.

What fees change the real cost?

Fees can add several points to the true cost. The common ones are an origination fee of 1% to 5% taken from the proceeds, SBA guarantee fees on larger 7(a) loans, closing costs on real estate, documentation fees on equipment, draw fees on lines, and late fees. Some online lenders charge the full interest even if you repay early, which is a cost in disguise.

An APR includes interest plus most mandatory fees, so it is the number to compare. A 12% loan with a 5% origination fee over two years costs more than a 14% loan with no fee. Ask for the APR and the total payback on every offer.

How do you compare a factor rate with an interest rate?

Convert the factor rate to an APR, because a factor rate ignores time. A 1.3 factor rate means you repay $1.30 for every $1 advanced. Over 12 months that is roughly a 55% APR; over 6 months it is roughly 110%, because you are paying the same fee in half the time while the balance falls with every daily payment.

The full math is in APR versus factor rate, and the MCA true cost calculator converts any offer. Cash advances still have a place when speed matters more than cost and the term is short, but you should always know the APR before you accept one.

How do you get a lower rate?

Improve the things lenders price: raise your personal credit score above 680, show six months of clean bank statements with no overdrafts, pay down cards and existing advances, and offer collateral where you have it. Borrow what your cash flow supports rather than the maximum offered.

Get more than one offer. Pricing varies more between lenders than most owners expect, and a competing offer is the best negotiating tool you have. Applying once here reaches lenders in every category, and you can also ask your AI assistant to apply for you through our MCP server; see the agents hub. The business loan calculator shows what each offer costs over its term.