How to Get a Low-Interest Business Loan

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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Money is one of a business owner’s most valuable resources. Capital helps you hire more workers, expand into new locations, and add to your inventory. Many entrepreneurs use small business loans to get quick access to cash, but high-interest rates will make it more challenging to pay off loans and credit lines. 

A low-interest business loan lowers your monthly payments, giving you more room in your budget to grow your business. Creditors typically award these loans to business owners who have demonstrated financial responsibility in the past. Knowing how to optimize your financial profile will increase your odds of qualifying for high loan amounts at low-interest rates. We will explore some strategies to get a low-interest business loan and what counts as a low rate.

High-Speed Small Business Loans

The Difference a Low-Interest Rate Can Make in a Business Loan

Interest rates play a significant role in dictating your monthly payments. Therefore, securing a lower interest rate can save you thousands of dollars over the loan’s lifetime. These extra savings can make a substantial difference for small business owners who operate under tight profit margins.

What is a Good Interest Rate on a Business Loan?

If you apply for several business loans, you’ll receive varying interest rates. While business owners usually opt for loans with the lowest interest rates, they don’t want to get burned by accepting an offer too early. A good interest rate will depend on which business loan you want to receive. 

Most business owners should be happy with an interest rate below 15%. You can get a lower interest rate than that by demonstrating you are a low-risk client who is highly likely to pay back the loan. Borrowers with bad credit can expect higher rates on their loans.

What Do You Typically Need to Get a Low-Interest Rate on a Business Loan?

Lenders weigh several factors before deciding on an interest rate for your loan. Knowing what creditors look for can help you optimize your finances so you qualify for more money and lower rates.

Profitability of Your Business

Lenders will look at several months of your business bank account statements to determine your company’s profitability. Small business lenders incur risks with each loan they provide, and profitable clients are less risky. Profitable businesses have more resources to cover loan payments. Some unprofitable companies can get loans, but these business owners will incur higher interest rates. Reviewing your expenses before applying for a loan can make your profit margins look more attractive. Lowering your costs will also give you more room in your budget to afford the monthly loan payments.

Credit Scores

Most financial institutions have minimum credit score requirements for obtaining a loan. If you have the minimum score, you can get a loan, but most lenders will charge higher interest rates. When a lender shares the minimum score, view it as something to surpass as much as possible rather than viewing the minimum score as the end game. Some companies do not have credit score requirements and use different strategies to determine if you can make the loan payments. You might get a low-interest rate, but you have a much higher chance of securing a low-interest loan if you have a good credit score.

High-Speed Small Business Loans

Collateral

Adding collateral to a loan will shift some of the risks from the lender to the consumer. Lenders can take underlying assets if a business owner does not make loan payments. You can use equipment, real estate, accounts receivable, and other assets as collateral. For less liquid assets like equipment, you will receive a loan equal to a lower percentage of the asset’s face value. These loans have lower interest rates than unsecured loans since the lender has a backup plan in case the business owner stops making loan payments.

Relationship with Your Bank/Lender

It pays to play nice. Developing a strong rapport with your bank or lender can help you access better loans and get lower interest rates. Some financial institutions will provide more favorable loans as you work with them more often. Banks and lenders can look beyond your credit score and shortlist you for financing opportunities if you know them. If you do not build relationships with banks and lenders, they will only assess you by your credit score, income, and other details. Business owners who view banks and lenders as transactional relationships can miss out on better loan terms.

Average Interest Rates for the Most Common Types of Business Loans

Knowing the average interest rates on popular loans will help you determine if you are getting a good deal. While business owners get varying rates based on their finances and credit, benchmark rates serve as valuable reference points.

SBA Loans

The U.S. Small Business Administration provides business owners with various funding sources. You can work with several lenders who received approval from the SBA, so that rates will vary. The average interest rate on an SBA loan ranges from 8% to 13%.

Term Loans

Business term loans provide predictable monthly payments due to their fixed interest rates. These interest rates vary significantly, especially if you work with an online lender. You can expect an interest rate between 11% to 44%. Having a good credit score and strong financials will get you closer to an 11% interest rate. Some business owners can secure single-digit interest rates from these loans.

Line of Credit

Many consumers get their first exposure to credit lines through credit cards, but you don’t need a credit card to have a line of credit. Most business credit lines have interest rates between 7% and 25%. While lines of credit are usually easier to obtain than loans, they have variable interest rates. If interest rates continue to increase, it will impact your total debt. This small business financing option has generous minimum monthly payments, but you should pay off the balance quickly to avoid rapid debt accumulation. 

Equipment Financing

Equipment financing has a wide range of interest rates. Most business owners will have a rate between 2% and 20%. While the same factors influence the interest rate, lenders will also look at the equipment’s condition. Older equipment increases the lender’s risk and may warrant a higher interest rate than if you purchased new equipment. Using the equipment as collateral for the loan can also help reduce your interest rate.

How to Get a Rate Estimate for Your Business Loan with No Obligation

Business owners use loans to expand their companies, maintain operations, and make additional investments. Capital gives business owners more choices, but paying back a loan can feel overwhelming. It would help if you knew the interest rate and other details about your business loan before fully committing. You could then weigh the pros and cons and assess if your budget could support loan payments.

Business owners can get a free, no-obligation quote by filling out Rok Financial’s form. Rok Financial provides small business lending solutions and products. They provide same-day funding on some of their loans and do not have credit score requirements. If you have low credit, you can still get a loan. Business owners with high credit scores can work with Rok Financial to discover low-interest-rate loans. You can start the process by completing Rok Financial’s form today. A business financing advisor from Rok Financial’s team will then reach out with more details.

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