Current business loan rates vary between types of business loans and lenders. Your credit score, annual revenue and time in business will also affect the interest rate you receive.
Because various factors determine interest rates, it’s important to review all aspects of a small business loan before making a decision.
SBA 7(a) loans
The U.S. Small Business Administration (SBA) partners with financial institutions to provide SBA loans to businesses. The SBA guarantees a portion of these loans, reducing risk for lenders. The 7(a) loan is the SBA’s primary lending program for small business owners.
Borrowers can use SBA 7(a) loans for various expenses, such as working capital, real estate, equipment and more.
The SBA limits the interest rate lenders may charge based on the current prime rate (8.5% as of July 27, 2023). The cap to the prime rate varies depending on the type of loan, loan amount and repayment term.
Because of this cap, SBA loan rates are often competitive compared to other types of business loans.
SBA 7(a) variable loan interest rates
*Variable interest rate 7(a) loans are pegged to the prime rate (currently at 8.5%), the LIBOR rate or the SBA optional peg rate.
According to the SBA, fixed interest rate 7(a) loans are based on the prime rate in effect on the first business day of the month of your loan.
SBA 7(a) fixed loan interest rates
Rates accurate as of December 2023.
Traditional bank loans
Banks tend to have strict eligibility requirements. They tend to require good business and personal credit, two years in business, a business plan, financial statements, cash flow projections and collateral. Because of these high underwriting standards, traditional bank loans tend to have the lowest interest rate ranges and most attractive terms.
Online loans
Online loans come from lenders without brick-and-mortar locations. These alternative loans are often available to borrowers with less-than-perfect credit, making them generally more accessible than traditional bank loans.
However, these flexible qualifications often mean you’ll receive higher interest rates and less flexible terms with an online lender than with a traditional bank.
Business lines of credit
A business line of credit is a form of revolving funding that businesses can use repeatedly. Like a credit card, you can borrow up to the limit, repay what you borrowed and borrow again. An advantage of a business line of credit is that you only pay interest on the outstanding amount.
Interest rates on business lines of credit vary depending on the lender and whether you offer collateral.
Merchant cash advances
A merchant cash advance allows a business to borrow a lump sum against its future credit and debit card sales. Instead of repaying in monthly installments, the lender partners takes a preset percent of your business’s credit card or debit card sales each day or week. This continues until the advance is paid off.
Merchant cash advances charge a factor rate rather than an interest rate. The lender multiplies the advance amount by the factor rate to determine how much interest is due.
For example, if you borrow $10,000 and the factor rate is 1.3, you’ll owe $13,000, including principal and interest. Factor rates tend to be higher than interest rate ranges on traditional bank loans.
Invoice factoring
Invoice factoring allows businesses to unlock cash tied up in unpaid invoices. A businesses can sell their accounts receivable (invoices) to a factoring company, who takes a fee and sends you the remaining balance. You can usually get 70% to 90% of the value of your unpaid invoices advanced to you from the factoring company.
Factoring companies charge a factoring fee — either as a flat fee per invoice or as a variable fee that increases if the invoice remains outstanding beyond 30 days. Invoice factoring tends to be more expensive than other forms of financing.
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