Business Loan Interest Rates: What to Expect
Not financial advice. This guide is for information only. It is not a recommendation to borrow, lend, invest or take any financial action. Read the full disclaimer.
Interest rates determine how much your loan costs. This guide explains what rates to expect.
Business loan rates span an enormous range: SBA loans commonly sit in the 7–11% range, bank term loans around 8–13%, unsecured online loans 12–30%, and merchant cash advances can exceed 40% once the factor rate is converted to an APR. The rate you are offered is driven mainly by collateral and trading history, not by your industry. The quoted rate is also less important than the APR, which folds in fees.
Why the Quoted Rate Is Not the Price You Pay
A lender advertising "rates from 6%" is quoting the best-case rate for the strongest possible borrower. Almost nobody gets it. More importantly, that number excludes origination fees, guarantee fees and closing costs that can add several percentage points to your true cost.
The comparable figure is the Annual Percentage Rate (APR). Origination fees of 1–3% are standard on bank products and are typically deducted from the loan proceeds, so you borrow $200,000, receive $194,000, and pay interest on the full $200,000. Our APR calculator converts a rate plus fees into a true APR in one step.
The gap between the advertised rate and the true APR is usually between one and three percentage points on a bank term loan, and considerably larger on short-term online products.
What Actually Drives Your Rate
Lenders price for the probability of default. Five factors move that probability more than anything else.
Collateral. The difference between secured and unsecured lending on the same borrower profile is often three to six percentage points. If you own equipment or receivables, using them as security is the cheapest rate reduction available to you.
Trading history length. A business with four years of returns carries meaningfully lower risk than one with twelve months. Some lenders publish separate rate cards by time in business.
Personal credit score. Rate tiers are usually banded by FICO. Crossing from 660 to 700 can move you a full tier; crossing from 700 to 740 often moves you another.
Industry. Restaurants, construction and retail are priced higher than professional services because margins are thinner and failure rates are higher. This is one of the few factors you cannot change.
Loan size and term. Larger, longer loans carry lower rates because fixed underwriting costs are spread further. A $500,000 loan is priced lower than a $25,000 loan from the same lender, sometimes by several points.
The Benchmark: What Lenders Price Against
In the United States, business lending rates are anchored to the prime rate, which moves with the Federal Reserve's policy rate. Most variable-rate business loans are quoted as prime plus a spread, commonly prime plus 1% to prime plus 5% depending on risk.
This means your rate is partly outside your control. If policy rates rise after you sign a variable-rate loan, your payment rises with them, even if your business has not changed at all. This is why fixed-rate products command a premium — you are paying for certainty.
When comparing offers, check whether the rate is fixed or variable, and if variable, what the floor and ceiling are. Some contracts set a floor so the rate cannot fall below a certain level even if the benchmark does.
Worked Example: Four Offers, One Real Answer
A printing company needs $150,000 over five years. Annual revenue $1.1 million, net operating income $210,000, FICO 731, five years trading, $70,000 of equipment owned outright.
Offer 1 — Bank term loan: 8.5% APR, 2% origination fee ($3,000). Monthly payment $3,077. Total repaid $184,620. Including the fee, the business receives $147,000 and repays $184,620 — true cost $37,620 on $147,000.
Offer 2 — SBA 7(a): 10.25% APR but a 25-year amortisation available on the same amount. On a 10-year term at 10.25%, the monthly payment is $2,002 and total interest is $90,240. Higher headline rate, but far lower monthly burden. If cash flow is tight, this is the better product.
Offer 3 — Online term loan: 19% APR, no origination fee. Monthly payment $3,886. Total repaid $233,160. More than the bank loan by $48,540.
Offer 4 — Merchant cash advance: factor rate 1.30, repaid over 9 months. You repay $195,000. That is $45,000 of cost on a 9-month product, which converts to an effective APR in the mid-40s.
The lesson: Offer 1 is cheapest in total cost, Offer 2 is best for monthly cash flow, Offer 3 is the price of speed, and Offer 4 is the price of desperation. Knowing which problem you are solving tells you which offer is right.
Typical Rate Ranges by Product
| Product | Typical APR range | Fixed or variable | Main rate driver |
|---|---|---|---|
| SBA 7(a) | 7% – 11% | Usually variable | Prime rate plus spread |
| SBA 504 | 5% – 8% | Fixed | Tied to Treasury benchmarks |
| Bank term loan | 8% – 13% | Either | Collateral and DSCR |
| Business line of credit | 9% – 18% | Usually variable | Prime plus spread |
| Equipment financing | 6% – 14% | Usually fixed | Asset type and age |
| Online term loan | 12% – 30% | Fixed | Credit score and revenue |
| Invoice factoring | 15% – 60% effective | Per invoice | Customer payment speed |
| Merchant cash advance | 30% – 80% effective | Factor rate | Card volume and repayment speed |
Risks and Points of Caution
- Comparing rates across different products. A 12% five-year loan and a 12% nine-month advance are not remotely the same cost. Always convert to APR before comparing.
- Ignoring a variable-rate floor. If your contract has a floor, you keep paying the floor even when the benchmark falls. Rarely explained at signing.
- Underestimating the fee stack. Origination, guarantee, documentation, closing and broker fees can add 3–5% of the principal. Ask for an itemised fee schedule in writing.
- Accepting a short term to get a lower rate. A short term at a lower rate often costs more per month and more in total than a longer term at a higher rate. Term length affects cash flow more than rate does.
- Prepayment penalties. If the loan carries one, paying early — the natural response to strong trading — costs you money.
How to Get a Better Rate
- Offer collateral if you have it. This is the single largest available reduction.
- Correct any credit report errors before applying, and let aged accounts keep ageing.
- Apply for a larger amount than the minimum if your DSCR supports it — larger loans are priced lower.
- Get three written offers including an SBA option, broken down by rate, fees and term.
- Convert every offer to an APR using the APR calculator.
- Ask each lender which factor is holding your rate up, and whether a different structure would price lower.
- Re-run the numbers on a longer term. A lower monthly payment often matters more than a lower rate.
- Model the payment at three percentage points above the quoted rate if it is variable.
Sources and Further Reading
- Small Business Lending SurveyFederal Reserve Banks
- SBA Loan Interest RatesU.S. Small Business Administration
- Truth in Lending Act — Regulation ZConsumer Financial Protection Bureau
- H.15 Selected Interest RatesBoard of Governors of the Federal Reserve System
Sources were consulted when this guide was last reviewed. Where a figure is a range, it reflects the spread across the sources listed rather than a single quoted number. See our source policy and fact-checking process.
Key Takeaways
- Compare APRs, never quoted rates. Fees worth 1–3% of principal hide inside the headline number.
- Collateral is the biggest lever on price. Secured lending is typically three to six points cheaper.
- Variable-rate loans pass Federal Reserve policy changes straight through to your payment. Stress-test at plus three points.
- Factor rates on merchant cash advances convert to APRs in the 30–80% range. Always do the conversion.
- Term length affects your cash flow more than rate does. Sometimes a higher rate over a longer term is the right answer.
Frequently Asked Questions
What is a good interest rate for a business loan?
For an established business with collateral and a FICO above 700, anything under 10% APR for a term loan is competitive. Between 10% and 15% is normal for unsecured lending. Above 20% you are paying a significant risk premium and should look for a better-suited product before signing.
Why is my business loan rate higher than advertised?
Advertised rates are the best-case tier for the strongest borrowers. Your rate reflects your specific profile: time in business, credit score, collateral offered, industry and loan size. Small loans are also priced higher because fixed underwriting costs are spread over less principal.
Are business loan interest rates fixed or variable?
Both exist. SBA 7(a) loans are usually variable, tied to prime. SBA 504, many equipment loans and most online term loans are fixed. Variable rates move with the Federal Reserve, so a variable loan carries payment risk that a fixed loan does not.
How does prime rate affect my business loan?
Variable-rate business loans are quoted as prime plus a spread, so when the Federal Reserve changes policy rates, your payment changes too — typically within a quarter. A 1% prime increase on a $200,000 loan with five years remaining adds roughly $90 to $100 to the monthly payment.
Is a merchant cash advance rate the same as an interest rate?
No. A merchant cash advance quotes a factor rate, such as 1.25, meaning you repay 125% of what you received. It is not an annual rate because the cost depends entirely on how quickly you repay. A 1.25 factor repaid over nine months works out to an effective APR in the mid-40s.