Understanding Business Loan Rates

business loan interest rates

Estimated reading time: 3 minutes

If you need money to grow or expand your small business, you will most likely start researching the various loan options. Large banks, small community banks, credit unions, and direct lenders offer small business loans. The application process, approval requirements, and processing times vary depending on your lender. Understanding business loan rates can be difficult because so many variables are involved. If you wonder how interest rates are determined, this Balboa Capital blog post can help. It features all of the vital information that you need to know.

The business loan process.

The business loan process involves granting funding from a lender to a business owner, referred to as the debtor. The debtor will repay the loan, with interest charged as a percentage of the loan’s principal over a specific period. Both the lender and debtor will benefit from this agreement.

The lender makes money in interest payments and any loan-related fees. The debtor can secure growth capital to fund expansion efforts, marketing, equipment, and many daily business expenses.

Why loan interest rates differ.

Before you apply for a business loan, you must compare the various options to pick the one that best suits your needs. That is because each type of loan has different rates. For example, if you need cash right away and do not mind repaying a loan with a higher interest rate, consider an unsecured small business loan. This type of loan has higher interest rates because it does not require collateral in most cases.

On the other hand, Secured business loans have lower interest rates because the lender has collateral to fall back on if you stop making loan payments.

Things that influence interest rates.

There is no “one-size-fits-all” interest rate for business loans. That is because each business owner’s financial situation and credit rating are unique. Instead, the interest rate will be based on several factors, including your creditworthiness, time in business, and annual revenue. For example, you will get a more favorable interest rate if you have a good credit score and your company has generated solid revenues over the past year or longer.

If you are starting a new business, you might find it challenging to get approved for a loan because startup loans are deemed risky by lenders. Moreover, the interest rates for a new business will be higher than for an established company operating for one or more years.

How to get a low business loan rate.

If you have been prequalified for a business loan and think the interest rate is too high, you are not alone. Many business owners are in the same predicament because of their credit history and personal credit score. As you probably know, poor credit is often a red flag for lenders. The good news? There are ways to improve your credit to obtain a business loan with a favorable interest rate.

For starters, check your personal and business credit reports to see any errors or inconsistencies and, if you find any, report them so they can be resolved. Next, make sure you do not have late payments, outstanding bills, or unnecessary debt. If you do, ask your accountant for recommendations on how to get your finances in order. Most business owners are surprised to find out that simple steps like these can put them in the driver’s seat when it comes time to apply for a loan.


We hope this information helps you better understand business loan rates. Finally, most lenders have fees that can increase the cost of your loan, so keep this in mind when you are comparing lenders. It is common for lenders to have application fees, loan origination fees, or service fees. If you plan to have enough cash flow to pay off your loan early, make sure your loan agreement does not have prepayment penalties.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.