What Is the Interest Rate on a Business Loan?

You’ll typically see business loan interest rates from about 6.5% to nearly 12% at banks, while online lenders may charge much higher rates due to risk. Your credit score, loan type, and collateral impact your rate greatly. SBA loans offer competitive rates, often capped around 12.5% for larger loans. Fees like origination or underwriting also increase costs. Understanding these factors helps you make smarter borrowing choices—explore deeper to find customized strategies and lender differences.

Understanding Business Loan Interest Rates

Although interest rates on business loans vary widely, understanding the factors that influence these rates is essential for making informed financial decisions.

Business loan interest rates typically range from 6.54% to 11.7% at banks, while online lenders may charge up to 99% APR.

Bank loan rates usually fall between 6.54% and 11.7%, but online lenders can reach up to 99% APR.

SBA loans offer competitive rates—10.5% to 14% for variable and 12.5% to 15.5% for fixed interest—depending on loan size and conditions.

Your credit score, loan type (secured or unsecured), and lender choice critically impact rates.

Types of Business Loan Interest Rates

A business loan’s interest rate can be either fixed or variable, each affecting your repayment differently. Fixed rates remain constant, common in SBA loans, which currently cap at 12.5% for loans over $250,000.

Variable rates fluctuate with market conditions, often seen in lines of credit that range from 10% to 99% APR. The Annual Percentage Rate (APR) reflects the total borrowing costs, including fees, offering a more thorough measure than simple interest rates.

You should also distinguish between Annual Interest Rate (AIR) and factor rates, as the latter often applies to alternative financing with higher effective costs.

Factors Influencing Business Loan Rates

When you’re seeking a business loan, several key factors will directly influence the interest rate you’re offered.

Business loan rates hinge on your credit score and overall financial health, with higher scores typically securing lower interest rates. Secured loans reduce perceived risk for the lender, often resulting in better rates than unsecured options.

Market conditions, including shifts in the federal funds rate, also impact lending rates. Additionally, your business characteristics, like operational history, affect perceived risk—newer businesses usually face higher rates due to limited credit history.

Understanding these variables helps you anticipate and negotiate ideal loan terms.

How Lender Type Affects Interest Rates

Three main lender types—traditional banks, credit unions, and online lenders—significantly impact the interest rates you’ll encounter on business loans. Traditional lenders like banks and credit unions offer lower business loan rates due to stricter qualification and better credit profiles. Online lenders, catering to riskier profiles, charge higher rates. SBA loans backed by the government typically have favorable interest rates. Approval rate and collateral requirements further influence pricing. Here’s a data-driven comparison:

Lender Type	Interest Rates & Approval Rates
Small Banks	10.5%-14%, 54% approval rate
Large Banks	10.5%-14%, 45% approval rate
Credit Unions	10.5%-14%, 47% approval rate
Online Lenders	14%-99%, higher rates for unsecured loans
SBA Loans	10.5%-14%, secured loan rates

The Role of Collateral in Loan Pricing

Although interest rates vary widely across loan types and lenders, the presence of collateral consistently plays a critical role in determining loan pricing.

When you offer collateral, especially tangible assets like real estate or equipment, lenders view the loan as less risky, often reducing interest rates from 9%-10% to 6%-7%.

Secured loans backed by collateral also enable access to larger loan amounts and longer repayment periods with favorable terms.

If your credit histories are weak, providing collateral becomes essential to secure funding at reasonable rates.

Consequently, collateral directly influences both the cost and accessibility of business loans.

Impact of Federal Reserve Rate Changes

When the Federal Reserve cuts rates, business loan interest rates generally follow, as seen with SBA loan maximum rates dropping from 13.5% to 12.5%.

For example, a $500,000 SBA 7(a) loan now costs about $35,388 less in interest annually due to recent cuts.

Keeping an eye on future Fed rate changes can help you time loan applications to secure the most favorable terms.

Federal Reserve Rate Cuts

Since the Federal Reserve’s recent rate cuts have lowered the federal funds rate, businesses have seen a corresponding decrease in loan interest rates, including SBA loans where the maximum fixed rate dropped from 13.5% to 12.5%.

This shift reduces your borrowing costs and total interest costs considerably. The prime rate now stands at 7.5%, influencing variable SBA loan rates.

Watching Federal Reserve rate cuts helps you time loan applications to secure favorable interest rates.

Key impacts include:

• Lower business loan rates overall
• Reduced maximum SBA loan fixed rates
• Decreased interest costs on 7(a) loans
• Influence on lending rates via prime rate
• Improved borrowing conditions for businesses

SBA Loan Rate Effects

As the Federal Reserve adjusts its monetary policy, you’ll notice direct effects on SBA loan interest rates, especially for larger loans exceeding $250,000.

Recent Federal Reserve rate cuts have lowered maximum fixed rates from 13.5% to 12.5% for loans over $250,001, tied now to the daily prime rate at 7.5%.

SBA loans also feature variable rates based on loan size, with rates up to 10.5% for loans above $350,001.

These adjustments reduce borrowing costs, enabling small businesses to achieve significant savings— for example, a $500,000 loan could save about $35,388 in interest due to lowered SBA loan interest rates.

Future Rate Cut Outlook

Recent adjustments by the Federal Reserve have already brought down SBA loan rates, but the outlook for further cuts could have an even greater impact on your borrowing costs.

With the prime rate at 7.5%, additional rate cuts in 2025 may reduce business loan rates and lower interest rates on SBA loans further. This can translate into significant loan savings and reduced business borrowing costs.

However, lower rates often increase borrowing demand, potentially affecting loan availability.

• SBA 7(a) max fixed rates dropped from 13.5% to 12.5%
• Prime rate directly influences SBA loan interest rates
• Future Federal Reserve rate cuts expected in 2025
• A 1% rate reduction can save $35,388 on $500K loans
• Lower interest rates typically boost borrowing demand

Common Fees Associated With Business Loans

When you consider a business loan, typical fees like origination, underwriting, and closing costs can add 0% to 5% or more to your total loan amount.

These fees directly affect your effective borrowing cost, sometimes increasing what you pay over the loan’s life by thousands of dollars.

Accurately accounting for these charges is essential to understanding the true expense beyond just the interest rate.

Typical Loan Fees

Although the interest rate is a key factor in business loans, the typical fees associated with borrowing can considerably increase your overall cost.

Business loan fees such as origination fees, usually a percentage of the loan amount, add upfront costs. Underwriting fees cover the lender’s assessment of your creditworthiness, varying by application complexity.

Closing costs include appraisal and packaging expenses, often totaling hundreds or thousands. For SBA loans, guarantee fees of up to 3.75% impact your total loan cost.

These fees influence the Annual Percentage Rate, affecting overall loan affordability.

• Origination fees
• Underwriting fees
• Closing costs
• SBA guarantee fees
• Impact on APR

Fee Impact on Cost

Because fees directly increase your borrowing costs, it’s essential to understand how common charges like origination, underwriting, and closing fees affect your total loan expense.

Origination fees typically range from 1% to 5% of your business loan amount, while underwriting fees vary by lender and cover application evaluation.

Closing costs, including appraisals and loan packaging, further add to borrowing expenses. For SBA loans, guarantee fees can reach up to 3.75%.

These fees, combined with the interest rate, considerably elevate your total cost, so factoring them in guarantees a precise assessment of your loan’s financial impact.

Strategies to Secure Lower Interest Rates

Securing a lower interest rate on your business loan hinges on several key factors that lenders analyze to assess risk.

Your business loan interest rate can be optimized by strategically managing these elements:

• Maintain a strong credit history and credit score (700+) to qualify for lower interest rates.
• Opt for a secured loan by offering collateral to reduce lender risk.
• Compare multiple loan offers within a 14-day window to find competitive rates without harming your credit score.
• Present a thorough business plan demonstrating solid financial fundamentals.
• Build a lender relationship to access interest rate discounts on future loans.