Compare Small Business Loans
The average interest rate for small business loans varies depending on the type of loan product and the type of lender. Loans from traditional lenders, such as banks or credit unions, can have APRs ranging from 5% to 13%, while alternative or online loans can have APRs ranging from 6% to over 100%. Your credit score, your business finances, and the term of your loan will also affect the interest rate.
- Average Small Business Loan Interest Rates by Lender
- Average Small Business Loan Interest Rates by Loan Product
- Other Factors That Affect Your Small Business Loan Interest Rate
Average Small Business Loan Interest Rates by Lender
Interest rates will vary across lenders, with banks typically offering lower interest rates than alternative or online lenders. Loans backed by the Small Business Administration (SBA) also offer competitive rates, even when compared to conventional bank loans.
|Type of Lender||Average Annual Interest Rate (AIR)||AIR for SBA Loans|
|Large National Banks||2.55% - 5.14%||6.24%|
|Small National and Regional Banks||3.23% - 5.40%||5.96%|
|Foreign Banks (made by U.S. branches)||1.50% - 5.45%||-|
|Online or Alternative Lenders||5.49% - 66.57%||4.39% - 7.01%|
The data on traditional lenders, obtained from the Federal Reserve, was taken for commercial and industrial loans and can serve as a good comparison point when shopping for loan products. The rates presented above are effective annual interest rates that factor in compounding annual interest from the stated rate, the length of the term and the loan value. Unlike an annual percentage rate (APR), the effective annual interest rate does not include any closing or other fees, which will vary by lender. What's more, this data tracks all types of commercial and industrial loans, so these rates may be lower than what you would receive on a loan.
Online lenders have higher interest rates because they have less strict eligibility requirements and process loan applications much more quickly than a bank. For example, some alternative lenders may only require six months in business and stated annual revenue of $100,000 to apply. Even if your business has only been operating for one year or is just starting up, there are plenty of financing options to choose from (though the cost of borrowing is higher on average). In the table below, we compared annual percentage rates of online business loans from alternative lenders and banks.
|Lender||Annual Percentage Rates (APRs)|
|Wells Fargo (unsecured business loan)||6.50% - 22.99%|
|Bank of America (unsecured business loan)||Starting at 4.75%|
|American Express (unsecured business loan)||6.98% - 19.97%|
|OnDeck||9.3% - 99.7%|
|Kabbage||20% - 80%|
|PayPal Working Capital||15% - 30%|
|Lending Club||7.77% - 35.11%|
|Fundation||7.99% - 29.99%|
|Funding Circle||7.35% - 33%|
|SmartBiz||5.85% - 8.95%|
|Dealstruck||9.99% - 27.99%|
|BlueVine||16% - 56%|
|SnapCap||19.99% - 49.99%|
|Fundbox||13% - 60%|
|QuarterSpot||20% - 48%|
|StreetShares||8% - 39.99%|
|Credibly||9.99% - 36%|
|Currency||8% - 35%|
Average Small Business Loan Interest Rates by Loan Product
The type of loan product you apply for will also affect your interest rates. Some alternative products, such as merchant cash advances or invoice factoring, will have much higher APRs than more traditional options, such as term loans or SBA loans.
|Type of Loan Product||Average APRs|
|Bank Loans||4.25% - 13.00%|
|SBA 7(a) Loans||5.85% - 9.00%|
|Online Term Loans||7.35% - 99.70%|
|Lines of Credit||5.25% - 80.00%|
|Merchant Cash Advances||12.00% - 200.00%|
|Invoice Factoring||13.00% - 60.00%|
Alternative lenders offer a wider variety of loan products than banks. Most banks will offer term loans and lines of credit, but alternative lenders may offer these in addition to accounts receivable financing, merchant cash advances or invoice factoring. Merchant cash advances allow you to get funding in exchange for a percentage of your business’s credit card sales over time, and they are among the highest interest rate options on the market. Invoice factoring allows you to sell your unpaid invoices at a discount for a cash advance, generally with one-time repayment when the invoice is due.
Other Factors That Affect Your Small Business Loan Interest Rate
Most small business lenders will evaluate both your personal and your business’s credit score during the loan application process. They want to see that you can make timely repayment on your other debt obligations, whether personal or business. Most lenders have credit score minimums to qualify for their loan products. But these can vary greatly, with banks sometimes requiring personal scores of 680 and above and some alternative lenders accepting scores as low as 500. Once you qualify, rates will vary depending on your score as well. Having a higher credit score can help you qualify for lower interest rates.
Lenders will also consider your current and projected business finances as part of the application process. Most lenders make requirements regarding your time in business and the minimum amount of annual revenue you need. And while requirements for cash flow or profitability are less common, you want to have good accounting practices and strong numbers. You also need to demonstrate to the lender how you plan to use the loan proceeds and how they will benefit the business in the long run. Most lenders will want to see this outlined in a business plan.
Banks spend the same amount of money and time underwriting small and large loans, and since big businesses tend to borrow larger amounts, banks will earn more from them. As a result, banks typically charge small businesses more to make the investment worthwhile for them. As a general rule of thumb, the smaller the loan amount or the shorter the length of the loan term, the higher the interest rate will be. Another factor that can affect your interest rate is your relationship with the lender. Some lenders will offer lower interest rates or reduced fees for borrowers that have taken out multiple loans and repaid them on-time. This is true for both banks and alternative lenders, so it may be a smart idea to do your borrowing from one place.