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, which helps lenders determine the financial health of your business, 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 also offer competitive rates, even when compared to bank loans.
|Type of Lender||Average Annual Interest Rate (AIR)||AIR for SBA Loans|
|Large National Banks||2.24% - 4.77%||5.60%|
|Small National and Regional Banks||2.86% - 5.43%||4.66%|
|Foreign Banks (made by U.S. branches)||0.75% - 4.88%||-|
|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. These 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 APRs, the effective annual interest rate does not include any closing or other fees, which will vary by lender.
Online lenders typically have higher APRs because they have less stringent eligibility requirements. For instance, some lenders may only require six months in business or a minimum 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 APRs is higher on average). In the table below, we compared APRs across different alternative lenders with those offered by traditional banks.
|Lender||Annual Percentage Rates (APRs)|
|Wells Fargo||Starting at 5.55% - 15.84%|
|KeyBank||4.26% - 5.86%|
|OnDeck||6% - 99%|
|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||5.75% - 13.00%|
|SBA 7(a) Loans||5.50% - 8.70%|
|Online Term Loans||7.30% - 98.40%|
|Lines of Credit||7.77% - 80.00%|
|Merchant Cash Advances||15.00% - 100.00%+|
|Invoice Factoring||17.00% - 70.00%|
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. Invoice factoring allows you to sell your unpaid invoices at a discount for a cash advance, 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. Most lenders also have credit score minimums (the lowest credit scores accepted by alternative lenders can be as low as 500) to qualify for their loan products. 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.
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 from a bank 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.