The Definitive Guide to Business Loan Interest Rates

In today’s competitive environment, it’s common for small business owners to need financing quickly. But in the rush to acquire the funds they need, small business owners may not fully grasp the impact of the business loan interest rates that come with the loan. Understanding interest rates will help you compare loan options, understand when your business might need to refinance existing debt, or plan for the next financial chapter for your company.

Typical business loan interest rates depend on a wide variety of factors. Among the factors to consider are the type of small business lender providing the loan and the financial health of the small business itself. Knowing how loan interest rates for business loans – and also any fees associated with those loans – work can give small business owners an edge when it comes to affordable financing eligibility.

How should business owners approach interest rate on their business loans? We’ve collected the most important information about business loan interest rates here in this definitive guide.

In this article:

• How business loan interest rates work.
• Current small business loan rates, so you can understand what low-rate business loans
• How to get the best small business loan rates when you borrow.

What Are the Interest Rates on Business Loans?

The plethora of lenders in the market today gives small business owners a number of financing options, yet there isn’t a single one-stop shop. This makes it difficult to compare all business loan interest rates.

Still, small business owners need to be able to sort through the annual percentage rates (APRs), loans, and other terms that combine to result in different monthly repayment terms depending on the loan. How can small business owners determine what is a good rate for a commercial loan? And what range of rates can they expect to see today and in the near future?

Under normal circumstances, small business owners can expect average annual percentage rates (APRs) of between six percent and 12 percent for traditional banks. Online or alternative lenders traditionally skew much higher, up to 99 percent.

The first step in this process is understanding what the average rate on a business loan is. Of course, this rate depends on the type of loan and lender. Whether you’re using business lending to secure more working capital or you want to buy commercial real estate, competitive rates can vary significantly depending on the loan type and your creditworthiness.

Small business owners can use a business loan interest rates calculator to estimate their monthly payments and make more informed business decisions. This allows them to better understand everything that goes into creating a monthly payment.

A clear picture of what type of loan and loan amount it needs can help a small business understand what type of interest rate it can expect to pay. A small business's credit score is also a decisive factor in determining the interest rate on a loan.

How Are Interest Rates on Business Loans Determined?

One key component of interest rates is the prime rate. The prime rate is the interest rate that banks charge their most credit-worthy clients. The prime rate itself is determined by the federal funds rate, which is the interest rate that banks charge each other. The SBA—and all lenders—use the prime rate as a floor when setting interest rates. Other factors determining business loan interest rates include:

• Personal credit scores of the business owners: Credit scores have a major impact on interest rates, especially with business term loans. A strong credit history can result in a lower overall loan cost.
• Amount of time the business has been operating: Banks tend to offer low-interest small business loans to businesses with a longer track record of success. Startups may struggle to qualify for any business lending from traditional banks.
• Business's financial strength: A business’s annual revenue and cash flow projections help a lender understand how likely they are to repay the loan.
• Loan repayment term: Long-term loans tend to have lower interest rates, since the funds are being borrowed for a longer period of time. Conversely, short-term loans have higher interest rates. Despite the higher rates, business owners pay less interest over the life of the loan with a short-term loan.
• Accessibility of the loan: Traditional banks tend to require a great deal of paperwork, and it can take a month or longer for the loan to be processed. But if the loan is approved, the intense scrutiny will result in a more favorable interest rate. Alternative lenders offer business loans that are easy to apply for and quick to approve. Funding can arrive in a matter of days, rather than weeks. But this ease of doing business will result in a significantly higher interest rate.

Fixed Rates vs. Variable Rates

One of the most important decisions in business financing is choosing between fixed interest rates and variable interest rates.

A fixed interest rate means that the rate will remain the same throughout the duration of the loan. Variable rates, on the other hand, can change and may rise or drop. Loans with variable interest rates may be linked to prime rates or other significant rates within the economy.

Variable rates can be misleading since they are often lower initially than fixed rates, but can easily rise. This, in turn, can saddle the small business owner with an expected higher monthly payment. This unpredictability of variable rates can make it tough for business owners to plan and budget for the future.

Fixed rates also have a potential downside. If, for instance, a business owner received a fixed rate at a higher interest rate, they can be locked into the rate even if rates were to drop. In such cases, business owners have the option of refinancing at a lower rate.

Always take a close look at the loan disclosures to understand how your loan works before signing on the dotted line.

What is the Average Interest Rate for a Small Business Loan in the United States for 2025?

In general, banks and credit unions tend to offer the lowest interest rates on small business loans. But the drawbacks of doing business with these types of lenders are that underwriting requirements are much stricter, and approval can take a while. It’s important to note, however, that business loan interest rates change over time.

Based on data from the Federal Reserve, current business loan rates as of June 2025 are as follows:

• Traditional banks: 54% to 11.7% APR
• Online term loan: 14% to 99% APR
• SBA loan: 5% to 14% (variable-rate loans) or 12.5% to 15.5% (fixed-rate loans) APR
• Business line of credit: 10% to 99% APR
• Equipment financing: 4% to 45% APR
• Invoice financing: 10% to 79% APR

Loan Costs Beyond Business Loan Interest Rates

When applying for a business loan, small business owners might not look beyond monthly payments and overall repayment terms. By doing so, they may not grasp the full cost of the loan. For instance, some business loans charge higher interest rates regardless of whether the business has a good credit score and positive cash flow.

In addition to business loan interest rates, you must understand the loan fees involved with any loan. The type and amount of fees can vary from lender to lender, and sometimes fees are unavoidable. While fees are not included in your interest rate, they factor into the calculation of the annual percentage rate (APR) of the loan and can increase its overall cost.

Before you start your loan application, ask about any of the following fees:

• Application fee: Charged for processing loan applications and to pay for the credit check. They are typically not refundable, even if a loan application is denied.
• Origination fee: Payment for processing a loan application. The amount is normally one to two percent of the loan. It’s not unusual for this amount to be deducted from the face amount of the loan, slightly lowering the amount of funding the business owner receives.
• Closing fees: An umbrella term for all fees charged during the loan process, plus others that may arise. For instance, it’s common for appraisal fees to be added to a real estate loan.
• Processing fees: Fees for underwriting and administration. They can reach up to five percent.
• Prepayment fees: Penalties that can be charged when a business loan is paid off prematurely. They can be roughly three to five percent of the loan principal. Their purpose is to compensate the lending institution for lost interest on the loan.

In addition to fees, you may also have to provide collateral. A loan that is secured with collateral generally charges a lower interest rate than an unsecured loan. Collateral can take the form of assets from a business, such as equipment or real estate.

Final Thoughts

Now that you better understand the many variables that can affect your business loan interest rate, you can make a more informed decision the next time you apply for a small business loan. It’s essential to approach this process holistically and seek areas of improvement on your financial health to secure the best loan option possible. You can use specialized tools to help you manage your business credit and qualify for the best small business loan interest rates on your next funding request.

FAQs

What are business loan interest rates?

Business loan interest rates differ depending on the kind of loan, the lender, the business's qualifications, and the collateral offered. Traditional banks and credit unions tend to offer the lowest interest rates, but that’s not always the case.

What are additional cost factors for loans?

The full cost of a loan may depend on more than just business loan interest rates. Lenders may charge a variety of fees, from origination fees and closing costs on a commercial real estate loan to prepayment penalty fees.

How do you lower your business loan interest rates?

Some of the best ways to lower your business loan interest rate include providing collateral, taking the time to improve your credit score or establish more of a profit history before applying, or making a down payment to offset some of the risk for the lender.

Are credit card rates lower than business loan rates?

Business credit cards tend to have very high interest rates, although you get a grace period to pay off your statement balance before interest is charged. These rates are often higher than bank loan rates, but that’s not always the case.

How do business loan interest rates work?

Business loan interest rates are the cost of borrowing money, expressed as a percentage of the loan amount. The total interest paid is calculated by multiplying the loan amount by the interest rate.

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