Business Loan Rates

A Guide To Business Loan Rates

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Gary Hemming

Author: Gary Hemming CeMAP CeFA CeRGI CSP

20+ years experience in business loans

The interest rate charged on your business loan will have a significant impact on your monthly repayments and the total cost for credit.

Business loan rates can vary greatly between each lender and therefore, it’s important that you shop around to find the best deal before you apply for a business loan.

Understanding Business Loan Rates

Business loan interest rates currently start from 5.9%.

Each loan is individually priced based on the individual details of the loan application. Key factors that impact the rate charged are:

  • Your chosen loan amount
  • Your personal and company credit score
  • The loan term
  • How affordable the proposed loan repayments are
  • The business loan lender that you’re applying to
  • Your business sector

Most lenders use a complex risk scoring system to generate an interest rate based on your requirements. Business loan lenders price applications according to risk, so the lower the risk that you present, the lower the interest rate charged.

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What are typical business loan rates?

While business loan rates start from 5.9%. that doesn’t mean that every loan will be priced at that level.

Typical business loan rates are between 8-12%.

For stronger businesses with strong credit scores and high levels of profit, a lower rate is more than achievable.

8-12% is simply the average rate for the average business. The stronger your business and the better your choice of lender, the lower your interest rate will be.

The lowest rates are reserved for the lowest risk applications

Lenders will naturally compete to secure the best applications, so pricing becomes much lower for companies with a credit rating of ‘A’ or ‘B’.

Equally, those who are looking to borrow a small amount in comparison to their annual profit are seen as a safe application and may get a better rate.

Finally, due to economies of scale, you may be able to achieve a better rate on a large business loan than a small business loan.

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Are secured loans cheaper than unsecured?

No, secured business loans aren’t necessarily cheaper than unsecured business loans. At least in terms of the interest rate charged.

They do come with some benefits, however, such as the ability to extend your loan term beyond what would be possible with an unsecured loan.

If you’re unsure which option is best for you, talk to an experienced business loan broker, who can offer free advice.

Secured finance may allow you to borrow more, while remaining affordable due to the longer term.

They are also easier to qualify for if you have poor credit, making them a great option for those looking for a bad credit business loan.

How can I get a better deal on my business loan?

To get a better deal on your business loan, you should look to increase your business credit score. You can do this by making payments on time and managing your business finances well.

The next option is to take a flexible approach to your loan amount and loan term. Tweaking either or both of these can open up new, low interest options.

If you’re specifically looking for a fast business loan, consider lenders who will offer a better deal, but may take slightly longer to complete.

Finally, consider the alternatives to a business loan, as they may allow you to borrow money at a lower cost.

What are the alternative sources of finance available if I don’t want to pay these rates?

If you need to raise capital for your business but don’t want to pay an interest rate between 5.9-12% per year, there may be alternative options available to you.

Alternative ways to borrow money to buy new equipment

The first option for those looking for equipment finance for new business assets is a product called asset finance. Asset financing is the collective term for a type of finance products the allows you to purchase equipment in a number of ways.

These options can range from purchasing using a loan secured against the asset, through to leasing options.

The second option allows you to borrow against your own home for business purposes while keeping your current mortgage. These products are known as secured loans, homeowner loans or second charge mortgages.

Alternative ways to borrow money for cash flow

If you’re looking for an alternative to business cash flow loans, you should consider invoice finance, business revolving credit facilities or a business overdraft.

Invoice finance allows you to borrow against the invoices that you have issued to your customers, which are yet to be settled. Invoice financing can be broken down into 2 products; invoice factoring and invoice discounting.

Business revolving credit facilities are standalone products that allow you to borrow and repay funds within an agreed limit, as needed to manage your cash flow.

Finally, a business overdraft is also a form of revolving credit and allows you to take your business bank account balance into a negative figure. This allows you to balance your cash flow.

Alternative ways to purchase a property

Finally, if you’re looking for an alternative to a business growth loan and you own your business premises, consider a commercial mortgage or a bridging loan.

Commercial mortgages allow you to borrow funds to purchase or refinance a commercial property. They are designed as a long-term business loan over a term of 5-25 years in most cases.

Commercial bridging loans are a type of short-term business loan that allow you to purchase or refinance a commercial property quickly. They are usually taken over a term of 1-18 months.

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