According to the most recent data from the Federal Reserve Bank of Kansas City[1], average business loan interest rates currently range from around 6.4% to 11.5%. That’s a pretty wide threshold, but you can use this information as a benchmark to determine whether the rate you’re getting is good or not. With that being said, rates can vary greatly depending on the type of loan you’re getting, the strength of your qualifications, and the lender offering the financing.
If you’re looking to get a small business loan, I’ll walk you through everything you need to know to help you get the best rate possible. That way, you can save money on interest charges and minimize the likelihood of having any strain on your monthly cash flow.
Key takeaways:
- Having compensating factors can boost your odds of getting a more favorable rate, even if you have any weaknesses, like a lower credit score or a downward trend in your financial performance.
- Getting quotes from multiple lenders will give you a better chance of securing the best available rate for your circumstances.
- Interest rates fluctuate over time — what may have previously been a competitive rate could now be considered high based on recent market conditions.
Average business loan interest rates by type
Business loan rates can vary quite a bit depending on the specific type of loan you’re getting. To make it easier to visualize, check out the table below.
Business loan type | Estimated average rates |
|---|---|
Term loan | 7.3% to 7.99% |
Line of credit | 7.25% to 8.17% |
SBA loan | 8% to 15.5% |
Merchant cash advance | 40% to 100%+ |
Invoice factoring | 10% to 80% |
Equipment loan | 5% to 15% |
Term loan
With a term loan, you’ll get a single lump sum of funds deposited to your account. Depending on the lender, term loans may only allow you to use funds for specific purposes, and can be issued with a fixed interest rate that never changes for the life of the loan. They can also be issued with a variable interest rate that can fluctuate at specified time frames.
In general, fixed-rate loans have higher interest rates in exchange for eliminating the uncertainty and risk associated with a variable-rate loan, where payments could potentially increase over time. Currently, urban fixed-rate term loans have an average rate of 7.33%, while variable rates carry a 7.99% average. Rural fixed-term loans have an average of 7.47%, while variable rates currently hover at a 7.9% average.
Line of credit
A small business line of credit gives you flexible access to additional funds on an as-needed basis. In other words, you can continuously draw funds up to your approved credit limit. This structure makes it great for unexpected expenses or recurring funding needs, because unlike a term loan, you won’t need to apply for a new loan in the event you need more funding.
While most credit lines have a variable interest rate, many lenders also offer the ability to lock a portion of your balance at a fixed rate while you pay it off. Currently, urban fixed and variable rates are at averages of 7.25% and 8.15%, while rural fixed and variable rates carry 7.76% and 8.17% averages.
SBA loan
The Small Business Administration (SBA) is a U.S. federal agency that partners with private lending institutions to offer affordable financing options. SBA loans are partially insured by the federal government. As a result, these loans are slightly less risky to private lenders, since they know they’ll be reimbursed in the event of a loan default by a borrower. Consequently, SBA loans can offer some of the most competitive rates and terms available, albeit with the caveat that they can take quite some time to get approved, as well as require hefty amounts of paperwork to document eligibility.
Depending on your intended use of funds, the SBA designates maximum rates for various types of SBA programs. Current maximums are listed below, but you can view the most current rates in our SBA monthly rates article.
Current SBA loan rate maximums as of July 2025:
- SBA 7(a) loans: 10.50% to 14.00% variable (12.50% to 15.50% fixed)
- SBA Express: 10.50% to 14.00%
- CDC portion of SBA 504 loans: 6.174% to 6.420%
- SBA Microloans: 8% to 13%
Merchant cash advance (MCA)
A merchant cash advance is a way to get an advance on your credit card sales — making it ideal for businesses with a high volume in sales of that type. It’s also one of the most expensive forms of financing out there, and something I only recommend as an absolute last resort if you need funding. Annual percentage rates (APRs) can often exceed 100% on an MCA.
Note that MCAs may not have a traditional interest rate shown, as many charge a factor rate. Common factor rates are between 1.1 and 1.7. You can determine the total cost you’ll end up paying by taking your factor rate and multiplying it by your loan amount. So, for example, a factor rate of 1.5 on a loan of $10,000 would mean you’d have to pay back $15,000 to consider the loan paid in full (assuming there are no other loan fees being charged).
Invoice factoring
With invoice factoring, you can get an advance on your unpaid invoices that have been issued to clients. Invoices are assigned to a factoring company, which will issue you up to a certain percentage of the outstanding invoice amount. That company will also work directly with your customers in collecting payment. Once it has received payment from your customers, it will distribute the funds back to you, minus its fees.
Invoice factoring does not commonly charge a traditional interest rate. Rather, it charges a discount rate or a monthly fee of around 1% to 5% of the outstanding invoice amounts. In other words, the longer it takes for your customers to pay the invoice, the more you’ll end up having to pay. Depending on other fees charged and how long it takes for invoices to be paid, annual percentage rates (APRs) for invoice factoring generally range from 10% to 80%.
Equipment loan
WIth an equipment loan, you can get funding for any business-related equipment. Common examples can include things like computers, furniture, vehicles, and machinery. In many cases, rates on equipment loans are lower than other types of loans because equipment loans are commonly collateralized. This means that if you default on the loan, the lender has the right to take possession of the equipment in order to recoup its financial losses.
One of the great things about equipment loans is that because they’re collateralized, they represent a smaller risk for lenders and are therefore easier to get. Even if you’re a new business, the best equipment loans for startups can still offer competitive rates — but do keep in mind that you might not qualify for a lender’s best advertised rates until you have at least a 2-year history of being profitable as a business.
Factors that affect your business loan rate
There are many different factors that can affect your business loan rate, some of which you don’t even have control over. While lenders can also choose their own criteria, below are some of the most common factors that play a role in how much you’ll end up paying.
Economic factors
The Federal Reserve can adjust benchmark rates and monetary policy depending on the overall health of the economy. This is something that’s basically out of your control.
For example, the Fed can cut the Prime rate (one of several benchmark rates) if it wants to encourage consumer spending by making loans more affordable. On the flip side, the Fed can increase the Prime rate if it wants to encourage savings, cut consumer spending, and keep inflation from running too high. Keep in mind that the Prime rate is just one of several benchmark rates that the Fed can impact.
Risk appetite of the lender
If a lender wants to encourage more business in a particular segment of its business, it can decide to offer lower rates as either a temporary or long-term strategy. For example, if a bank wants to expand its credit line portfolio, then it may decide to offer special introductory rates or other promos to encourage new business. Because of this, it’s highly advisable to get quotes from multiple lenders as you never know when or where these great deals might pop up.
A pro tip I’ll share is that if you are too busy or don’t want to apply to multiple lenders yourself, you can work with a business loan broker. Brokers have a network of lenders, and they can essentially do the shopping for you with just a single loan application. Lendio is one of our best overall brokers that our team here highly recommends. It made our list of the best business loan brokers largely due to its wide range of loan offerings, network of lenders, and flexibility in eligibility criteria. Check out the Lendio website to learn more.
Credit score
Rates are often tied to the risk of default, and having a high credit score is a signal to lenders that you’re not likely to bail on your financial obligations, something that can allow you to qualify for its best advertised rates. Credit scores are calculated based on things like whether you’ve made timely payments on your past debt obligations, how frequently you apply for credit, and how long you’ve had credit.
A bad credit score is generally anything below 580, but it’s possible to fix bad credit with the right steps. Credit scores of 740 and above are considered very good and can often qualify you for a lender’s best rates.
Financial circumstances
Your company’s income is what will be used to repay debt — so lenders want to know whether you earn enough and if it’s likely to continue. In reaching this determination, lenders can evaluate the historical trend of your income.
Significant declines could be cause for concern and may require documentation to support whether it is likely to continue. Similarly, significant increases in income over a short period may also warrant closer scrutiny to determine how much of that increase is considered stable for the purposes of repaying debt.
Collateral
Besides helping you get approved for a loan, offering collateral can also qualify you for a lower interest rate. That’s because offering collateral reduces a lender’s risk of issuing you a loan, as they would then have the right to take possession of the collateral in the event you default on your payments.
Why your business loan interest rate is important
The interest rate on your loan is one of the things that determines your monthly payments. The higher it is, the more likely you are to have higher payments. Besides impacting your cash flow, it also means it may take longer to pay off the debt — potentially hindering your ability to invest in other areas of the business.
Even if you are willing and able to pay off the loan quickly, however, a higher interest rate can result in you paying more interest fees. That’s another item that can take away from the amount of cash that you’ll have available to cover other areas of your company’s operations.
Frequently asked questions (FAQs)
Typically, no. However, portfolio lenders and some hard money lenders may have flexibility in rates if you are able to offer up some compensating factors to strengthen your loan application. Common compensating factors include collateral, proof of financial reserves, and a trend of improving financials even if formal taxes haven’t yet been filed.
Typical qualifications for a good business loan rate include having good credit and strong financials. You can further strengthen your application with things like proof of strong financial reserves, putting down a large down payment, or agreeing to pledge collateral in exchange for the loan.
In general, lenders change rates on a monthly or quarterly basis. Rates are most likely to change whenever the Fed decides to adjust benchmark rates like the Prime rate, which could happen as many as eight times per year. With that being said, every lender is different, and it’s possible for rates to change on a more frequent schedule.
Bottom line
Average business loan rates can give you a rough idea of whether you’re getting a good deal or not. But keep in mind that averages can fluctuate quite a bit depending on the type of loan you’re getting, the lender you’ve chosen, as well as your specific circumstances and qualifications. Getting quotes from multiple lenders is one way to make sure you get the best deal possible, but don’t forget to also work on things like your credit and business finances, as those are the primary items lenders consider when determining what rate you’re eligible for.
References:
