Commercial Loan Interest Rates and the Market Today

Commercial loan rates vary depending on the type of loan and lender, speed of funding, collateral, economic conditions and other factors. 

Here we’ll share commercial loan rates, how they are calculated, and how to get the best rate on your next business loan. 

What Are Current Business Loan Interest Rates?

Bank Commercial Loan Rates

Bank Commercial loan rates. Source: Federal Reserve Small Business Credit Survey Q3 2023

The Federal Reserve surveys U.S. commercial banks on their small business lending activities. The voluntary results of this survey are reported by the Kansas City Fed in the Small Business Credit Survey. The rates above are based on that survey. 

SBA Loan Rates

SBA loan maximim rates

Find more information about current SBA loan rates ere.

The US Small Business Administration primarily guarantees loans made by participating lenders. The only loans it makes directly are Disaster Loans, including Economic Injury Disaster Loans. The rates above are maximum rates for their most popular loan programs. 

Commercial Real Estate Loan Rates

Commercial real estate loan rates

Commercial mortgage rates can change frequently, and will depend on a variety of factors discussed shortly.  

What Is Commercial Loan?

Basically, a commercial loan is a business loan, not a personal loan. 

Commercial loans refer to loans (debt-based financing) made to businesses rather than individuals. 

Sometimes this term is used specifically to refer to loans between banks or other types of financial institutions and businesses, and other times it may be used to refer to specific types of commercial loans such as commercial real estate loans or commercial term loans. 

How Are Interest Rates for Commercial Loans Determined?

With the exception of SBA loans, where maximum rates are determined using formulas set by Congress, lenders are generally free to charge commercial loan APRs of whatever amount they choose. 

Some types of commercial financing carry higher interest rates, but offer funding to business owners who may have trouble qualifying elsewhere. Or they may offer very fast funding with minimal underwriting, for example. 

Rates are based on a number of factors:

Interest rate indexes

Many lenders base the rates they charge on other interest rates in the economy, such as the prime rate, 5-year Treasury (or T-bill), federal funds rate and the libor (which has largely been phased out). Variable rate loans will typically be tied to an index such as the prime rate. SBA loans may be tied to the prime rate or SBA peg rate.

When the Fed raises interest rates, loan rates tend to rise, and vice versa. Not all types of loans have a direct relationship to those indexes, but there usually is some relation. 

Economic factors 

Lenders may adjust the rates they offer based on economic conditions. Lenders are in business to make money, not lose money. They need to take into account economic factors, such as inflation, that may make it harder for businesses to repay loans. 

Credit scores

Lenders don’t want to lose money by making loans that aren’t paid back. Creditworthiness helps them evaluate whether a borrower has a track record of repaying loans, and by extension, is likely to repay the loan in the future. 

Most lenders consider creditworthiness when evaluating applications and setting rates. They do this by reviewing the applicant’s personal credit reports and/or credit scores. Some lenders review business credit reports and/or business credit scores. And some review both. Borrowers whose applications are considered high risk may be approved, but at a higher interest rate. 

Learn how to establish business credit here. 

Collateral

Collateral is property that is pledged as security for a loan. If the borrower doesn’t pay the loan back, the lender can repossess the collateral. 

Whether it’s real estate for a commercial mortgage, or equipment for a commercial term loan, collateral may affect the interest rate. 

As a rule of thumb, secured loans carry lower rates than unsecured loans. 

Personal guarantees, and recourse vs. non-recourse loans are similar to collateral in that they give lenders more options if the loan isn’t repaid. Agreeing to be personally responsible for the loan if your business doesn’t pay it back may make it easier to qualify, and you may be able to get better pricing. 

Industry 

In some cases, interest rates may vary depending on the type of industry in which your business operates. (NAICS and SIC codes are often used to identify industries.)

Loan term

A loan that must be repaid in one year might be priced very differently from one with a ten-year repayment period. All things being equal, you can often get a lower rate on a shorter-term loan. 

Commercial Mortgage Rates

Commercial mortgage rates often take specific factors into account:

Loan-to-value

The larger your down payment, the lower your loan-to-value (LTV). The loan-to-value ratio compares the property value to the loan amount. A down payment of 25%, for example, means an LTV of 75%.) A higher down payment means less risk to the lender, and that can buy you a better rate. 

Property type

Are you buying a multifamily property and need an apartment loan? A single-family investment property? A laundromat, self-storage facility, or commercial office building? Each of these types of properties carry specific risk, and interest rates will be priced accordingly. 

Owner-occupied properties tend to carry the least risk. That’s where the buyer (borrower) will live in the property. Homeowners generally work very hard to keep that roof over their head. 

Hard money loans used to finance investment properties often have higher costs, but they don’t usually require good credit. 

Loan term

Earlier we mentioned that the loan term can affect the rate. With commercial mortgage loans, it’s not uncommon for the repayment term to be shorter than the amortization period. 

For example, the lender may base monthly payments on a 20-year amortization period, but after 10 years of payments require payment in full. At that point, there will be a balloon payment due for the remaining balance. The borrower will either need to refinance or sell the property. 

How Do I Find the Lowest Commercial Loan Interest Rate?

Of course you want to get a great interest rate when you borrow. But finding the lowest rate won’t matter if you don’t qualify, or if the loan isn’t a good fit for your business needs. (A short-term loan with a low rate isn’t a good fit if you need a ten-year repayment period, for example.) 

Instead, look for the best rate for the type of financing your business needs, and for which you can qualify. 

While banks and credit unions often offer low commercial loan for small business rates, the loan application process is often time-consuming. It can also be hard to get a business bank loan if you have a new business or if you have bad credit. That doesn’t mean you should try, but understand the application process and qualification requirements so you don’t waste time if you can’t qualify. 

Keep in mind that low rates can sometimes come from unexpected sources. Here are two examples of business loans with 0% interest rates:

• Business credit cards with 0% intro APRs can be used to finance purchases over several months at no interest. Some of these card offers last a year or longer. 
• Kiva, a nonprofit microlender with a crowdfunding aspect, offers 0% loans of up to $15,000. 

Those options won’t work for every type of business. You’re not likely to finance the purchase of a commercial property with just a business credit card, for example. You’ll typically need a large loan amount, and longer term. 

But for a business that needs a small line of credit for working capital or for a specific project, those options may be exactly what they are looking for. 

Historical Rates for Commercial Lending

It can be hard to uncover historical rates for all types of small business loans, as many aren’t publicly collected or tracked. 

The St. Louis Fed used to publish the Survey of Terms of Business Lending (STBL) and it made it easy to compare historic rates. That was discontinued in 2017. Information about small business lending is now collected by the Kansas City Fed which publishes the Small Business Credit Survey. 

This chart from that survey illustrates how commercial loan rates have changed over time:

Source: Small Business Lending Survey, Kansas City Fed.

Commercial Loan Rates: Bottom Line

If you’re shopping for a small business loan, you’ll want to look at several factors including the commercial loan APR:

• Costs, including fees and/or interest
• Repayment terms
• Collateral and/or personal guarantees
• Type of loan or financing

Nav can help you find the right loan for your business, based on your data. Get started now.