What is the average interest rate on a small business loan?
The average interest rate on a small business loan from a traditional, or bank lender is between 4% to 13%. However, online lenders can be more expensive, with rates hovering between 13% and 71%.
How much do you need down for a small business loan?
Depending on the size of the loan and the borrower’s financial qualifications, a lender may require a UCC-1 lien, or collateral agreement which says that the lender can take a portion of the borrower’s assets if they default on the loan. Most small business lenders won’t require a down payment, but will offer you an interest rate based on your annual revenue, personal credit score and a host of other factors.
How much can I borrow with a small business loan?
Small business loans can be anywhere from $1,000 to $5 million. The amount that you borrow depends on your financial needs, the lender’s maximum loan amount and your financial qualifications. Even if you need a large amount of cash, if you’re a brand new business or have poor credit, you might not be able to access that entire amount through just one lender.
By the same token, before signing an agreement to borrow a large amount of cash, make sure that you have evaluated your expenses and are not borrowing more than what you need. It’s important to remember that each loan comes with interest, so you’ll have to repay everything that you borrow, along with additional fees.
Why do small business loans cost more?
Small businesses can be some of the most high-risk borrowers for a lender to deal with. Because small businesses often have shaky revenue streams and are still growing, lenders see them with some uncertainty, so tend to charge higher interest rates to make up for that. Additionally, many online lenders don’t require any collateral, which means that if the borrower defaults on the loan, there aren’t a lot of immediate options that the lender can take.
What To Consider Beyond APR
Fees & charges
Although APR encompasses most of the anticipated fees associated with a loan, there are still additional fees and charges that the number might not include. These fees might be late payment fees if payments aren’t made on time, insufficient funds fees, and even fees for paying by check. Additionally, in the case of a loan being sent to collections, borrowers may also face hefty collection fees — which are not included in the initial APR of a loan.
Time to funding
If you have immediate financial needs or urgent repairs to pay for, it might cost you more in the long run to choose a loan with a lower rate but a slower time to fund. On the other hand, if you can afford to wait a few weeks or even a few months, some lenders may offer you significantly lower rates than if you borrowed through a lender that gives immediate access to funds.
Additional or hidden rates
Before signing any loan agreement, make sure to carefully read the fine print. In addition to a wide variety of fees that can potentially be imposed, you should also consider your ability to make timely payments. Even if a lender offers you a much lower rate in exchange for a shorter repayment period, it might not be feasible for you to make larger payments on time. If too many late payments pile up, you might find yourself facing fees that amount to more money than you would have spent by simply agreeing to a higher-rate loan with a longer repayment period. Before taking out a loan, remember to evaluate if the terms are manageable and realistic for your budget.
Best Small Business Loans With Low APR
Credibility Capital
Average Rates: Credibility Capital offers loans with APRs ranging between 10% and 25%.
Pros:
- Wide range of amounts, with access to loans of up to $400,000
- No prepayment fee
- Monthly payments with autopay option
- Potential for relatively low interest rates
Cons:
- High credit score requirement of 680
- UCC-1 filing requirement
- Possible personal guarantee requirement
- Maximum three-year repayment term
- Takes seven days to fund, so not ideal if borrowers need immediate cash
» MORE: Credibility Capital Business Loans Review
OnDeck
Average Rates: OnDeck’s annual percentage rates range between 9% and 99% for term loans, and between 11% and 63% for their lines of credit.
Pros:
- Easy, online application
- Quick access to funds, with loans becoming available within as little as one business day
- Easy to qualify for
- Wide range of loan amounts, with a maximum of $500,000
- Rewards for repeat customers
- Good way to build business credit
Cons:
- Weekly repayments
- Short repayment terms, with a maximum of just three years
- Potential for APR as high as 99%
- No prepayment incentive
- Won’t work with certain industries
» MORE: OnDeck Business Loans Review
Kabbage
Average Rates: Kabbage offers loans with APRs ranging between 24% and 99%.
Pros:
- Loans can fund within just a few minutes
- Low personal credit score requirement
- Large loans ranging from $2,000 to $250,000
Cons:
- Potential for APR as high as 99%
- Complicated fee and repayment structure
- No prepayment incentive
- Short repayment terms, with a maximum of just 18 months
» MORE: Kabbage Business Loans Review
LendingClub
Average Rates: LendingClub’s loans come with APRs ranging between 9.77% and 35.98%.
Pros:
- Loan amounts of up to $300,000
- Flexible repayment terms, with a maximum of five years
- Monthly repayment
- Easy, online application
- APR as low as 9.77%
Cons:
- Difficult for new businesses or borrowers with poor credit to qualify, with a minimum credit score requirement of 620
- High origination fees
- Insufficient funds and late payment fees
- Slower time to fund than other online lenders
» MORE: LendingClub Business Loans Review
SmartBiz
Average Rates: SmartBiz offers SBA loans with rates ranging between 9.7% and 11.04%.
Pros:
- SBA loans with low rates
- Shorter time to fund than through a traditional SBA loan application
- Flexible, 10-year loan repayment terms
- Amounts of up to $350,000
Cons:
- Difficult for new businesses or owners with poor credit to qualify
- Borrowers have to meet all SBA requirements
- More expensive than a traditional SBA loan, with the lender imposing an extra fee on top of the regular SBA interest rate
- Takes more time to fund than other online lenders
» MORE: SmartBiz Business Loans Review
Conclusion
Whether you’re looking for a loan to manage some last-minute, small expenses or you need some extra cash for the down payment on a new piece of equipment, the annual percentage rate is going to be the biggest factor that determines how expensive your loan will be. However, APR isn’t the only factor that plays into the overall cost of a loan, so make sure to look into the finer details of each agreement before accepting any offer.