If you’re looking to get small business loans to start or expand your company, you may be wondering about the average business loan interest rate since that will impact what you pay overall to get financing for your business. Prime rates increased in 2022, which led to business loan interest rates going up as well. However, there is reason to hope that rates may still go down in 2023.

In this article, we’ll dive into average small business loan rates, when rates may go down, and some of the best small business loan rates to help you understand the true cost of financing this year.

Business Loan Rates in 2023

The Federal Reserve has increased the prime rate several times this year, leading to some increases in interest rates for products like small business loans. As CNBC pointed out, such high rates could make it much more difficult for small businesses to afford to borrow. Small businesses may struggle to make enough revenue to pay their monthly payments on the funding they’re borrowing. SBA loans are currently some of the most affordable loan options on the market — but even the common SBA 7(a) loan may cost up to 12% interest at the time of writing.

However, there is potential that rates will decrease in 2023 and beyond. Morningstar predicts that the Federal Reserve will back off of its aggressive rate hikes in the coming years. The investment researcher projects that the prime rate will lower to 1.75% by 2026. Interest rates from banks will likely follow suit, so small business owners may need to just make it through this tough period and wait for financing to become more affordable. 

And remember, short-term funding means you’ll pay interest for less time, so even though you might see steep business loan rates, your overall interest owed might be affordable. Borrowing may be worth it when compared with the growth advantages of securing financing. Use Nav’s APR Calculator to figure out the total cost of a small business loan and get a better idea of whether or not it’s worth it in the long run.

Average Business Loan Interest Rate by Loan Type

The average business loan interest rate for a small business loan in 2023 will likely range from as low as 3% or 4% to as high as 100% or more. With so many different types of business loans available for borrowers across a broad credit spectrum, the answer isn’t entirely clear.

Understanding the type of loan you need for your business and your credit situation can give you a better idea of what kind of interest rate to expect.

Average Interest Rates

Loan type	Annual interest rate (AIR)
Traditional bank loan	3% to 13%
SBA loan	10% to 15.75%
Online loan	11% to 100%
Merchant cash advance	20% to 250%
Invoice financing	13% to 60%

When searching for a business loan, you might come across several types of lenders, including large national banks, small community banks and credit unions, online banks, microlenders, and more. Some lenders also make SBA loans, which are partially guaranteed by the U.S. Small Business Administration.

What Is a Good Interest Rate on a Business Loan?

Ideally, the lower the interest rate you can get, the better, because it means you’ll pay less for your loan. But interest rates alone don’t determine what you pay; the length of your loan repayment period also matters. You might secure a lower interest rate with a 10-year loan, but you’ll be paying interest a lot longer than you would with a, for example, five-year loan.

SBA Loan Rates

Rates on loans made by the SBA or loans guaranteed by the SBA (such as the SBA 7(a), or 504) are very competitive, but they vary depending on the type of SBA loan. In addition, SBA lenders may negotiate rates within allowable parameters. Learn about SBA loan rates here.

You may also come across different interest rates for different types of loan programs. SBA secured loans, for instance, typically charge some of the lowest interest rates because the lender has collateral to repossess if small business owners default.

Because some of the interest rate ranges are very broad, it can be hard to know whether an interest rate offer you receive is competitive. As a result, it’s essential that you compare several loan options before applying to ensure you get the best deal.

Business Loan Rates for Business Lines of Credit

With a business line of credit, there is a wide variation in terms of how much you’ll pay in interest. On the low end, you could pay only the prime rate + 2.25%. However, your interest can cost as much as 90% with a line of credit. The total interest you’ll pay largely depends on your creditworthiness and other specific factors regarding your business.

Business Line of Credit: Compare the Best Options

It can be daunting to choose between all the different lines of credit available, which is why Nav pulls together your best options and offers you personalized choices based on your business data. Use Nav to see your best options.

Here are some of the options that may be available to you.

Line of Credit by Fundbox

The Bluevine Line of Credit

Line of Credit by Headway Capital

American Express® Business Line of Credit

What Other Fees are Associated With a Business Loan?

Interest may not be the only fees you pay for a business loan. Depending on the lender, there may be other fees.

Some charge an origination fee, which is an administrative fee you pay to process your loan application. Some lenders may also charge prepayment penalties if you decide to pay your loan off early. And if you’re interested in refinancing a loan, keep in mind that there may be fees associated with this.

Before signing a loan agreement, read the fine print to see what, if any, fees you will be responsible for.

Where Can I Find Business Loan Interest Rates Today?

With so many different commercial lenders out there, there’s no central place where you can view current rates. It’s also important to note that the interest rate you get will be based on your creditworthiness and the strength of your business’ financials and credit history.

With traditional commercial lenders, you might need to apply to get an idea of what rates you qualify for. Some online lenders, however, will let you get prequalified with just a soft credit check to view your rates before you apply.

Where to Compare Business Loan Rates

Comparing rates from different lenders is not the most straightforward process since there’s no central location for the range of rates offered. This is especially difficult because rates can change daily. Also, the rates you can get depend on your business and personal details. 

Some banks and lenders will provide their range of rates offered on their website. Otherwise, you can contact a representative from the bank to get today’s rates, sometimes without having to perform a hard credit check.

Are Startup Business Loan Rates Higher?

In general, the average business loan interest rate for a startup is going to be higher than for an established business. This is because the chances of a startup failing are much higher than for a company that already has a solid track record.

In some cases, it might be difficult even to get approved for a business loan when you’re just starting out, as traditional banks and the SBA require you to be in business for at least two years, typically. You may need to opt for a microloan, business credit cards, or an alternative form of financing to get the working capital you need.

As you build your business credit history and establish a good history of strong revenues and cash flow, however, you’ll have a better chance of getting approved for a business loan with a lower rate.

Fixed vs. Variable Rates

Some types of business financing carry fixed rates, which means the rate will remain the same for the life of the loan. Others carry variable rates, which means the rate can change. Loans with variable interest rates may be tied to the prime rate or other rates in the economy. 

Variable rates are often lower than fixed rates but they may carry more risk for the borrower since both the rate and payment may change. Most business credit cards and many lines of credit have variable interest rates.

Interest Rate vs. APR

You may hear these two terms used with regards to small business loans, and wonder if they can be used interchangeably.

Interest rate is what you pay to borrow money over the course of a year. So if you borrow $10,000 and have 3% interest, you’ll pay $300 per year on the loan. If you take five years to pay it off, you will pay $1,500 in interest over the life of the loan.

APR, or annual percentage rate, also covers the annual cost of a loan, but also includes other fees. APR is usually higher than the interest rate.

What Is the Minimum Interest Rate for a Business Loan?

Again, there’s no single answer to this question. Lenders want to make money, so they will charge some interest for business lines of credit and loans. But it’s often based on current economic conditions. Right now, the interest rate is incredibly low, so to compete and get your business, lenders may offer rates as low as 2%. If you get a loan with a fixed rate, you will pay just 2% for the life of the loan. But as economic conditions improve, that rate would rise if you have a variable interest rate.

How Much Does a Business Loan Cost?

When taking out financing, it’s important to understand the true cost of financing. You can borrow hundreds of thousands of dollars…at a price. The interest you pay, as well as any fees the lender charges, contribute to your cost for financing. And if you miss a payment or are late, more fees can incur.

In the application process, carefully review the loan terms and conditions so you understand how much you will pay for the loan. You may be able to pay off the loan early to save on interest, though make sure you won’t be charged an early repayment penalty fee.

Which Banks Give the Lowest Rates for Small Business Loans?

Financial institutions such as banks and credit unions often offer the most competitive rates, but they also often have the most stringent qualifications. They often prefer to make larger loans to well-qualified borrowers. If you don’t have great credit, this may not be an option.

Banks and lenders offering SBA loans also offer competitive rates, and the requirements, while high, may be less difficult to meet than traditional bank loans.

What Factors Affect Business Loan Rates?

Every lender looks at different factors to determine eligibility for term loans, but most, particularly banks and SBA lenders, look first at your creditworthiness. They may look at both personal and business credit scores, and they may have a threshold you have to meet to qualify. The lower your scores, the higher interest rates you may be offered.

Additionally, how long you’ve been in business may determine whether you qualify for financing or not. Startups may have difficulty getting bank loans because they haven’t been in business long enough to prove financial stability.

For some types of loans, like commercial real estate loans, you may also be required to provide collateral to secure financing. 

Other types of loans, such as merchant cash advances, short-term loans, and invoice factoring, may not consider your credit at all, and may instead look at your monthly or annual revenues.

What Does It Take to Qualify for a Low Interest Rate?

Small business lenders will generally look at the following eligibility requirements when evaluating loan applications:

• The personal and/or business credit scores of the owners
• Time in business
• Annual revenue (usually based on business bank statements)

Other factors such as loan amounts, collateral, and even the industry of the business may have some impact on the rate that will be charged.

It’s not possible to control every factor that goes into your eligibility and your interest rate for a small business loan. But there are some things that you can do to reduce your overall credit risk to lenders.

Improve Your Personal and Business Credit

Many business lenders not only look at your business credit history but also at your personal credit score. This is because you might need to provide a personal guarantee in case your business can’t repay the debt.

Start by checking your personal and business credit reports and look for areas where you can improve. Then work to address those issues directly. A few examples include paying down high credit card balances, getting caught up on late payments, and avoiding unnecessary debt.

Finding the Loan with the Best Interest

No matter how much capital your business needs or what your credit situation, there are a variety of financing options for you to explore. Just know that the better your credit, the lower interest rates you can find. It’s up to you whether to take out a loan with higher interest or work on improving your credit so you qualify for better rates later.

Understand fees

While fees aren’t included in your interest rate, they are part of the calculation of your annual percentage rate (APR) and can increase the overall cost of the loan. Fees to watch out for include application fees, origination fees, processing fees, service fees, prepayment penalties, and closing fees.

While you can’t necessarily avoid all these fees, compare what different lenders charge to see if you can lower the amount of money you ultimately have to pay.

Consider collateral

Because secured loans typically come with lower interest rates than unsecured loans, it might be worth using assets from your business to secure the loan. This is especially easy to do with equipment financing because you can use the equipment itself as collateral. Just keep in mind that you may lose the asset you put up if you default on the loan.

Don’t only focus on payments

It’s tempting for borrowers to focus on monthly payments and repayment terms without fully understanding the cost of the loan. But some business loans tend to charge higher interest rates, regardless of how solid your credit history and financials are. For example, short-term loans, invoice factoring, and merchant cash advances all tend to charge higher loan rates than traditional term loans.

That doesn’t mean these financing options aren’t viable options. In some situations, you might need to take advantage of them. But you want to make sure you’re getting the best loan possible based on your qualifications, and you want to be confident that you can repay the financing.

The Bottom Line

The average interest rate for a business loan can vary depending on the type of lender you borrow from and the type of loan products your business needs. However, the interest rate you get can end up above or below that average, based on your creditworthiness and how your business is doing.

As you compare business loan products, look at both the interest rate and fees to understand the total cost of credit. Also, look for opportunities to improve your credit so that you pose less of a risk to potential lenders.

While there’s no guarantee you’ll get approved with the lowest rate a lender offers, these actions can help you qualify for more favorable terms.

FAQs About Business Loan Rates

• What questions are asked in a business loan application?

  When you fill out an application for a business loan, you’ll need to provide several details about yourself and your business. First, you’ll likely have to give your personal and business credit scores to the potential lender so they can check them against their requirements. Also, you’ll need to prove that you meet annual revenue requirements, which vary based on the lender, and prove that you have a sufficient number of years in business (which may only need to be six months but it depends what you apply for and with which lender). You’ll also need to provide your business’s industry, size, and business plan, and you may need to put down collateral or a down payment.

• How long are business loans usually for?

  The repayment period for business loans depends on the type of funding. An SBA loan might have a repayment term between six and 25 years while a line of credit might only be six months. A business loan from a traditional bank typically has a repayment term of between three and 10 years. Remember: The longer your loan repayment period, the lower your monthly payments may be, but the more interest you might pay in total since you’re paying interest for a longer period of time.

• How do you calculate the interest rate on a loan?

  To know how much interest will cost you in total, you’ll first need to know your interest rate, which the lender will provide to you. Some lenders won’t be able to give you the interest rate until after you apply while others, like the SBA, have set rates that they provide on their website. Once you have your interest rate, you can calculate the cost of interest on a loan by using Nav’s APR Calculator. Simply input your loan amount, interest rate, origination and application fees, the loan’s terms, and your monthly service fee. The calculator will do the math for you.

• What is the prime rate today?

  The prime rate is the rate set by the Federal Reserve, and is typically considered the starting point for all other interest rates. Banks typically look at the prime rate and add a number of points (usually three) to determine the interest rates they charge their most creditworthy customers. The current prime rate is set at 6.25% at the time of writing. Prime rates have increased several times in 2022 in an attempt to fight inflation. The Fed is expected to raise rates again before 2023.

• Which bank gives the lowest interest on business loans?

  The interest rate you can get as a borrower depends on a number of factors, but the options with the lowest interest rates typically come from traditional banks and the SBA. This isn’t always the case, however. If you have high credit scores, you may be able to qualify for a low interest rate from an online lender, for example. The interest rates you can find depend on factors like your creditworthiness, your time in business, and your annual revenue.