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Typical Small Business Loan Interest Rates
Written By: Tim B.

When you apply for a business loan, the most important aspect of the loan to you is likely the interest rate. Interest rates are the cost of borrowing money from a financial institution to fund the operations of a business. These rates can vary significantly based on many factors, including the type of loan, the lender, the creditworthiness of the borrower, and the terms of the loan.

At Llama Loan, we can help you find the best business loan interest rates with our comparison tools and offers. Get Started Today.

Average Business Loan Interest Rates

Interest rates on business loans are typically higher than those on personal loans because of the additional risk lenders take when lending to businesses. However, the actual rate will depend on the lender, the borrower and the loan terms. 

One of the main determiners of the rate depends on the type of business loan you apply for. Typical interest rates are as follows:

  • Invoice financing: 1.13+
  • Lines of credit: 4% to 30%+
  • Merchant cash advance factor rate: 1.09+
  • Online loan: 7% to 100%
  • SBA loan: 4% to 11%
  • Traditional bank loan: 3% to 13%

Interest rates vary significantly, however, so it is important to compare rates with similar types and terms to see what is the most competitive. 

What Determines Business Loan Interest Rates?

How rates are determined is complex and considers a wide range of factors. 

Some lenders may offer lower interest rates to borrowers with strong credit histories, while others may charge higher rates to borrowers with weaker credit or to businesses in industries that are perceived as riskier.

One of the main factors that lenders consider when determining the interest rate on a business loan is the creditworthiness of the borrower. Borrowers with strong credit histories and a track record of repaying loans on time are generally offered lower interest rates. On the other hand, borrowers with weaker credit or a history of defaulting on loans may be offered higher interest rates.

Other factors include the size and purpose of the loan, the length of the repayment period and the business’s financial stability and profitability. For example, a lender may offer a lower interest rate to a borrower looking to buy equipment or real estate, as these assets can serve as collateral for the loan. 

The economy can also influence business loan interest rates. During economic growth and stability, interest rates may be lower. During economic uncertainty or recession, interest rates may be higher, as lenders are more cautious about lending money. During 2022, the Federal Reserve raised interest rates multiple times, and it may continue to raise interest rates in the future. 

How to Get Lower Interest Rates on Business Loans

While you will not have complete control over the rates a lender offers on a business loan, you can potentially improve your likelihood of getting a lower rate. Getting better business loan interest rates requires careful planning, due diligence and negotiation. 

Improve your credit score

Lenders often use credit scores to assess the risk of lending to a business. The higher your credit score, the lower the risk to the lender. Looking like a lower risk is more likely to get you a lower interest rate. 

This applies to both your personal credit score and your business credit score. To improve your personal credit, pay your bills on time, reduce your debt and avoid applying for too much credit within a short period of time. 

Some lenders also want to see your business credit score. This is determined by details like the number of employees, how long the business has been in operation, payment history and amounts owed. Business credit scores are usually ranked from 0 to 100 or 0 to 300 using the FICO Small Business Scoring Service.

Shop around

Different lenders may offer different interest rates. Compare options from several lenders to find the best option for your business. You may also discover that some loan types have better interest rates, so consider all your options. 

At Llama Loan, we can help you with this process. After you input the essential information that a lender needs, we will show you which lenders you could qualify for, what rates would be offered to you, loan terms and other details to help make shopping around easier. Get Started Today.

Consider collateral

Some lenders may offer lower interest rates if you can offer collateral, such as real estate or equipment, to secure the loan. Carefully consider the risks involved, as you could lose the collateral if you default on the loan.


It may be possible to negotiate a lower rate. This may be more likely if you have a strong credit score, a solid business plan, and a good track record of repaying loans.

Consider alternative financing

Other financing options may offer lower interest rates, such as grants, investors, or crowdfunding. 

Other Loan Costs

The interest rate is not the only thing that determines the cost of a business loan. Other things to look into when considering the cost of the loan include fees. For example, some lenders will charge an origination fee, which is typically a percentage of the overall loan amount. You may also be charged other fees, such as for late payments or insufficient funds. Read the fine print to check which fees you may be charged.

You should also make sure not to confuse interest rates with annual percentage rates (APRs) when you want to see how much a loan will cost. The interest rate is what you pay over the course of the year, while the annual percentage rate can also include other fees. Therefore, the APR is generally higher than the interest rate.

How to Compare Business Loan Interest Rates

With so much going into interest rates and all the possible types of business loans, it can take time to determine which is best for you. When you compare interest rates, make sure to keep the following in mind:

  • Compare similar loan types: If you are considering more than one type of business loan, make sure you compare rates on the same kind of loan. That way, you can see what the competitive offers are within the same type and the different types. 
  • Factor in fees: Interest rates from one lender may look great, but the addition of fees could make it a more expensive option.
  • Check the loan terms: The loan term is the length of the loan. If you don’t compare the same loan term between two lenders, you won’t be able to see an accurate difference. If you play with how the loan term influences your rates, remember to adjust the term to all lenders you consider.

The easiest way to compare, however, is by using the help of a loan broker like Llama Loan. We can make it easier for you to shop around by showing you which loans you would qualify for and what interest rates and other costs to expect. We make the process of shopping and applying for small business loans simple so you can get the financing you need to meet your business goals. Get Started Today.

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