Average Business Loan Rates in 2024

Rates accurate as of April 2024.

  Read more about our list of the best small business loans.

Current business loan rates vary based on the lender and type of business loan. Your individual business details, such as credit score, annual revenue and time in business, will likely affect the interest rate you receive.

Because of various factors affecting interest rates, it’s essential to review all aspects of a small business loan before signing the dotted line.

SBA 7(a) loans

The Small Business Administration (SBA) partners with financial institutions to provide SBA loans to business owners who may not qualify for traditional financing. Since the SBA reduces lender risk by guaranteeing a portion of the funds, SBA loans typically come with lower interest rates than other types of small business financing.

The popular SBA 7(a) loan can cover a range of various expenses, such as working capital, commercial real estate, equipment, payroll and more.

The SBA caps the amount lenders can add to the current prime rate (8.50% as of July 7, 2023), depending on the type of loan, loan amount and repayment term. Because of this, the SBA loan program can be an affordable way to access the capital your business needs.

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 April 2024.

Traditional bank loans

Banks tend to have strict eligibility requirements for small business financing, typically requiring good personal and business credit scores, at least two years of business history, a solid business plan, financial statements, cash flow projections and collateral. Because of these high underwriting standards, traditional bank and SBA loan rates tend to be more competitive with flexible repayment terms.

Business lines of credit

Like a credit card, a business line of credit allows you to borrow up to a set limit, repay what you borrowed and borrow again. One of the advantages of a business line of credit is that you only pay interest on the withdrawn amounts, although some lenders may charge additional maintenance or withdrawal fees.

Business line of credit rates vary depending on whether they come from an online lender or traditional bank and if they’re secured or unsecured.

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 term loans.

However, these flexible qualifications often mean you’ll pay higher interest rates and get less attractive terms with an online lender than a traditional bank.

Browse our top picks for the best small business loans.

Merchant cash advances

A merchant cash advance (MCA) allows a business to borrow a lump sum against future credit and debit card sales. Rather than repaying the advance in monthly installments, the lender partners with your company’s credit card processor and withdraws a predetermined percentage of your sales each day or week until the loan is paid in full.

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 sell their unpaid invoices to a lender in exchange for a cash advance — typically 70% to 90% of the invoice’s face value. The factoring company then collects money from your customers on your behalf and sends you the remaining balance minus their fee.

Factoring companies charge a factoring fee, or discount rate, as a flat fee per invoice or as a variable fee that increases if the invoice remains outstanding beyond 30 days. While fast and convenient, invoice factoring tends to be more expensive than other forms of financing.

In addition to interest and factor rates, many lenders charge loan fees to cover the costs of issuing and administering a loan.

Here are some standard fees you may see included with your small business loan:

• Origination fee: The loan origination fee covers the costs of processing the loan, including underwriting, preparing and reviewing the loan application and deciding whether to approve the loan. The loan origination fee may be a flat fee or a percentage of the loan amount.
• SBA guarantee fee: The Small Business Administration charges this fee to guarantee a loan. It usually costs between 0% and 3.75% of the guaranteed portion of the loan.
• Servicing fee: Some lenders charge servicing fees annually to cover the costs of administering your loan, such as customer service, billing and collections.
• Underwriting fee: A lender can charge an underwriting fee for assessing and underwriting a business loan application. The amount varies from lender to lender but may be a flat fee or a percentage of the loan amount.
• Late payment fee: Lenders may charge a late payment fee if you pay past the due date. The fee may be a flat rate or up to 5% of the outstanding amount.

While the loan’s APR will likely include fees like origination and underwriting, certain fees may not be included in the APR rate. Check with your lender to see which fees they’ve designated as APR fees so you can calculate the total cost of borrowing.

One of the best ways to secure the lowest business loan interest rate is to make your business look strong and resilient to lenders. Consider the following tips to improve the likelihood of securing an attractive business lending rate.

1. Offer collateral

Some types of funding may require collateral, such as equipment financing or invoice factoring. Even if the lender doesn’t need collateral, offering it could help you receive more favorable rates.

Collateral helps reduce lender risk, allowing the lender to seize the assets you pledged if you default on the loan. Secured business loans using collateral generally come with lower rates than unsecured business loans.

2. Improve your personal credit

The higher your credit score, the less risky you may seem to a business lender, which could result in low-interest financing. After checking your credit score, you may want to boost your credit profile before applying for financing by following these tips:

• Paying down any existing debt, including credit card balances
• Making on-time or early bill payments
• Disputing any errors that currently appear on your credit report (you may be able to remove those errors as well)

 Learn more about how to improve your credit score.

3. Build your business credit score

In addition to building a solid personal credit history, keeping track of your business credit report is essential. While personal credit scores have a fairly standardized rating system, business credit scores vary depending on the company calculating the score. For example, Equifax creates three numbers for small businesses: a business credit risk score, a business failure score and a payment index.

4. Establish a relationship with a lender

Both banks and alternative lenders may be more willing to approve your business loan application if you’ve opened a deposit account with the institution. And if you’ve previously borrowed from the lender and made on-time payments, you could have a good shot at getting a second loan.

Furthermore, some banks offer reward programs for members, such as discounts if you decide to take out a business loan or line of credit.

Although circumstances could prevent you from borrowing and banking in the same place, it’s worth trying to do so if possible.

Most traditional banks and private business lenders allow you to apply for a small business online. Some lenders even make a decision within minutes.

Before applying for a small business loan, decide what type of loan you need, how much you want to borrow, how quickly you need the funds and your personal and business qualifications. Answering these questions will determine your loan options, including rates and terms.

Don’t forget to compare lenders before signing the business loan agreement, being sure to convert factor rates to APRs if necessary.