Business Loan Interest Rates – What to Expect

by | Jul 19, 2022 | Business Finance | 0 comments

In the past few months, interest rates have been keeping people on their toes. Business loan interest rates among them. During their June meeting, the Federal Reserve raised short-term interest rates by 3/4 of a point. This marks the largest increase since the mid-90s.

As far as business loan interest rates are concerned, it is certainly important to keep an eye on what the Federal Reserve is doing, but more importantly, you want to understand exactly how business loan interest rates work and how consequently, they impact overall loan cost.

Understanding Business Loan Interest Rates

So as an entrepreneur, what should you know about business loan interest rates and how they impact your company in the long run?

You can shop around for lower rates

Not all lenders will give you the same rate. A number of factors determine rates and some lenders will offer lower business loan interest rates than others. Keep in mind, however, that the qualifications can be stricter with lower interest rates.

Loan type will affect interest rates

You want to look carefully at the various loan products available and what each will cost you in terms of rates and fees. The type of business loan that you get will have an impact on the kind of interest rate that you’ll be looking at. SBA loans, for example, tend to have lower rates than short-term business loans.

Collateral can help you get a better rate

If you have collateral to help secure the loan, this could get you a better overall interest rate. That’s because when you do have collateral, the risk is lessened for the lender. With less risk comes more favorable terms.

Your company picture matters

That is to say, the lender is going to look at your overall financial situation. They will take into account things such as credit score, number of years in business, and annual revenue. Again, it is all about risk. The less risky you appear on paper, the better chance you have of getting a lower business loan rate.

Also, Consider Business Loan Fees

Business loan interest rates are not the only thing that you have to be mindful of when applying for funding. In many cases, there will be fees attached to your loan. This again contributes to the overall cost of the loan. You want to be mindful of whether the ROI you will get on a business loan will be worth the price you are paying in fees and interest. Some expenses to consider…

  • Underwriting fee. Underwriters review the documents that you provide with your loan application, such as bank statements and credit reports. Therefore, there is a fee associated with the service.
  • Origination fee. This is simply the fee that a lender will charge to process your loan.
  • Closing cost. On many loans, you will have closing costs to contend with. This can add a fair amount of money to the cost of the loan.

What Are Considered Good Business Loan Interest Rates?

While it’s difficult to say what might be considered a reasonable business loan interest rate versus a “bad” interest rate, it’s essential to look at the actual loan product. Various loans have different rates attached. So, for instance, merchant cash advances can be upwards of 30 to 40% interest. In contrast, an SBA small business loan might be at 8 to 9% interest. Before receiving your loan funds, you must talk to your lender to thoroughly understand exactly what you’re signing up for.

First Union Lending is Here for You

We offer a variety of loan products for small businesses across the country. We have a funding solution for you if you want to expand your office space, hire more personnel, or launch a new product. And all of our products are custom tailored for each individual client. Meaning, there is no off-the-shelf approach with us. We have a representative on hand to walk you through every step of the process; we never leave you hanging. And with most of our clients, funding comes within 2 to 3 business days. Unlike traditional banks, we do not leave you waiting for weeks on months to get your money. Call today and let’s get started together.