What is a Reasonable Interest Rate for a Business Loan?

Learn about commercial loan rates and how to get the best deal when applying for a business loan.

What is a Reasonable Interest Rate for a Business Loan?

The average commercial loan rate is between 2.5% and 7%, but you may still be able to get a good deal even if the rate you receive is slightly higher. The exact amount you'll be charged for a business loan can vary greatly depending on several factors, such as the type of lender you work with and your own criteria. For instance, while merchant cash advances have higher interest rates, they are usually repaid quickly. In addition to the more general 7 (a) loans, the SBA offers other business loans that are more specific.

If you're looking for the best commercial loan rates, it's best to consult with lending professionals, such as a National business finance advisor. Traditional banks rate borrowers based on their personal and business credit ratings, annual income, profitability, and more. The average interest rate on small business loans varies depending on the type of lender, the product of the loan, and whether your interest rate is fixed or variable. The advantage of fixed-rate loans is that they have lower interest rates, but they depend on the amount of the loan.

On the other hand, faster funding options, such as merchant cash advances, tend to be at the higher end of commercial loan rates. With a variable-interest rate loan, you run the risk of interest rising dramatically, but you could also see interest rate benefits drop quite a bit. Choosing the right loan for your business depends on several factors, including the intended purpose, business history, income, credit rating, and type of lender. Unfortunately, lenders don't give out loans for free; instead they make money by charging interest and fees to borrowers.

Other more specific loans include the SBA microloan program for certain types of small businesses and startups. Once you decide on the type of business loan you need, pre-qualify and check your rate with as many lenders as possible. Keep in mind that even if you meet the minimum requirements set by a lender, your rates and conditions will continue to vary depending on the strength of your application. In many cases, the guarantee can help you qualify for a higher funding amount or even lower interest rates.