Running a small business successfully with limited funding sources can be challenging. However, a small business loan is a rescuer here. This type of loan can be used for a variety of purposes, ranging from infrastructure development to inventory purchase to operational expenses.
A small business loan is highly advantageous for businesses falling short of capital as it is flexible and easy to avail without much documentation and time.
Let’s have a glance at small business loan rates.
Small Business Loan Rates
The loan rate varies depending on various factors. For instance, the type of small business loan you’re applying for, your qualification, and the lender you choose.
Conventional lenders such as credit unions, banks can have an annual percentage from 4% to 13% whereas online loans can charge percentage rates from 7% to over 71%. Check out average annual interest rate (AIR) of some major lenders.
Above table shows that online lenders charge higher annual interest rates than traditional lenders and Small Business Administration (SBA).
The kind of loan you choose also affect your interest rate to a large extent. Most banks offer business lines of credit and term loans. However, some alternative lenders offer merchant cash advances, accounts receivable financing or invoice factoring. Generally, such products carry higher interest rates than lines of credit and regular terms.
There are a variety of factors that may affect your small business loan interest rate. Therefore, it is advisable to approach a reputable financial firm that can help you secure the right funding according to your business needs.
Payment & terms on small business loans
Different financing firms have different payment options and terms. Below are the terms of a few important small business loans.
Business Lines of Credit:
Depending on your history, requirements, and trustworthiness, you can qualify for this loan. The amount of this loan starts from $10,000 to $500,000. The loan term can range from 6 months to 5 years with an interest rate of 7% to 25%. Your business must have completed 6 months and earning of $50,00 annual revenue to obtain this loan.
Although banks lend limited dollars to small businesses, you can expect to get as little as $50,000. The interest rate will vary depending on the size, length and credit score of a borrower. In some cases, you may have to put up security for secure financing.
Small Business Administration lends as little as $10,000. The loan can last from 3 to 25 years and interest rates are determined by the length and size of the loan.
Are small business loans based on personal credit?
Not entirely but yes to a large extent. Most lenders will see your personal credit score for loan application as they want to see how you manage debt. Before you apply for a small business loan, you should focus on building personal as well as business credit score. A personal credit score ranges from 300 to 850. Remember, the higher is better. Your target should achieve at least 600.
Is a small business loan secured or unsecured?
Every small business loan is unsecured that you can obtain without any collateral requirement If you’re ready to provide blanket UCC lien or personal guarantee. Look for the lender that offers loan without collateral. As long as you’re a responsible borrower, you don’t need to be worried about anything even if your loan is protected by colletral.
Is a small business loan installment or revolving?
A small business loan works similar to other loans in its most basic form, however, it can also take the form of revolving lines of credit. Since you can apply it for different purposes, its terms and payment options will depend on your specific purpose. For instance, SBA offers fixed as well as revolving lines of credit up to $5 million.
There are a lot of factors that may affect small business loan rates. Hopefully, the article makes you aware of some of those factors. Always choose a reputable financial service company that can get you a small business loan at easy rates.