Average Business Loan Rates in 2024

The average business loan interest rate ranges from is around 8% for fixed-rate term loans and 8.7% for variable-rate term loans.

We’ll cover the average rates for different types of business financing, including SBA loans, lines of credit and term loans.

Current business loan rates vary based on the lender and type of business loan. Your individual business details, such as credit score, annual revenue and time in business, will likely affect the interest rate you receive.

Here are some popular small business financing options and the typical rates you could expect to see.

SBA 7(a) loans

The Small Business Administration (SBA) partners with financial institutions to provide SBA loans to those who may not qualify for traditional financing. Since the SBA reduces lender risk by guaranteeing a portion of the funds, these loans typically have low interest rates and flexible repayment terms.

The popular SBA 7(a) loan can cover a range of business expenses, such as working capital, commercial real estate, equipment, payroll and more.

Maximum SBA loan rates are determined based on the current prime rate (7.75% as of November, 2024), type of loan, loan amount and repayment term

SBA 7(a) variable loan interest rates

According to the SBA, fixed-interest-rate 7(a) loans are based on the prime rate in effect on the first business day of the month of your loan.

SBA 7(a) fixed loan interest rates

Term loans

If you want a lump sum of cash with scheduled repayments, a business term loan from a traditional bank or online lender could be a great choice. While alternative business loans offer speedy turnarounds and may be a choice for low-credit borrowers, you may end up with higher interest rates and less attractive terms.

Banks tend to have strict eligibility requirements for small business financing, typically requiring good personal and business credit scores, at least two years of business history, a solid business plan, financial statements, cash flow projections and collateral.

Because of these high underwriting standards, bank loan interest rates tend to be lower and often come with more flexible repayment terms.

Right now, the median fixed-rate term loan interest rate is 7.98%, but your rate will vary significantly based on your lender and qualification criteria.

Business lines of credit

Like a credit card, a business line of credit allows you to borrow up to a set limit on an as-needed basis. You only pay interest on the withdrawn amounts, although some lenders may charge additional maintenance or withdrawal fees.

Right now, median rates for loans from urban banks are 7.65% for a fixed-rate LOC and 8.19% for a variable-rate LOC. If you’re working with a rural lender, that median jumps to 8.19% for fixed-rate and 8.96% for variable-rate lines of credit.

Rates can vary pretty significantly depending on the lender and if you get a secured versus unsecured line of credit.

Merchant cash advances

A merchant cash advance (MCA) allows businesses to receive a cash advance in exchange for a portion of your future credit and debit card sales. MCAs charge a factor rate rather than a standard interest rate. The lender multiplies the advance amount by the factor rate to determine how much you need to pay.

For example, if you borrow $10,000 and the factor rate is 1.3, you’ll owe $13,000, including principal and interest. While factor rates can start as low as 1.10, it’s worth converting to an APR to more accurately compare against other offers.

Invoice factoring

Invoice factoring allows businesses to sell their unpaid invoices for a cash advance — typically 80% to 95% of the invoice’s face value. The factoring company then collects money from your customers on your behalf and sends you the remaining balance, minus their fee.

Factoring companies charge a factoring fee, or discount rate, as a flat fee per invoice or as a variable fee starting as low as 0.55% — which can increase the longer an invoice remains unpaid.

While fast and convenient, invoice factoring tends to be more expensive than other forms of financing.

Your final business loan interest rate could depend on multiple factors, such as your credit profile, business finances, business history and more.

Credit

Small business lenders typically assess your personal and business credit when reviewing loan applications. If you have yet to build your business credit history, a lender may heavily weigh your personal FICO Score when making a decision.

A higher credit score generally leads to a lower interest rate. Banks may require scores in the mid to high 600s, while alternative lenders may accept scores as low as 500.

Business finances

Your business’s financial standing indicates your likelihood of repaying a loan, which would impact your interest rate. If a lender perceives you as a high-risk borrower, you would likely receive a higher rate. Be prepared to share your revenue, cash flow analysis and profitability documents.

Small business lenders may have specific revenue requirements similar to credit score requirements. Should you be approved, you may also need to explain how you plan to spend the loan funds.

Time in business

Businesses operating for fewer than two years may be considered riskier since they typically lack capital, collateral or business credit. Because of this, lenders may assign higher rates to startup business loans to ensure they get their money back. However, you may not get approved if you don’t meet the minimum business history requirements at all.

Business loan rates vary for different loan types, lenders and financing arrangements. However, you may encounter a few variations of typical business loan interest rates in your search for financing.

Fixed vs. variable interest rates

Interest rates for business loans can remain stable or fluctuate over time.

• Fixed rates: The interest rate doesn’t change during the loan term. Fixed rates are typical with standard business term loans, some SBA loans and equipment financing.
• Variable rates: Interest rates are subject to change during the life of the loan. Variable rates are often associated with business lines of credit, merchant cash advances and some SBA loans.

Budgeting for fixed-rate loans is generally more manageable since your payments are the same throughout the loan’s term. Still, varying interest rates could save you money, especially with short-term funding. Consider how fixed versus variable business interest rates could affect your company before making a decision.

Annual percentage rates (APR)

Annual percentage rates (APR) are commonly used to measure the cost of financing. Business loans, credit cards, mortgages and other forms of financing use APR to express interest. An APR on a business loan would include the interest rate and associated fees.

Annual interest rates (AIR)

Annual interest rate (AIR) reflects the interest owed each year on a loan. Unlike APR, AIR does not incorporate any fees that may be associated with the loan.

To find AIR, divide the total interest by your loan amount and term length. Regarding business loans, AIR may be more helpful than APR when needing to calculate business loan costs, especially as the balance decreases.

Factor rates

Unlike the above rates, factor rates are displayed as decimal figures, not percentages. Though not as common as APRs and AIRs, factor rates are typically associated with high-risk business lending products, such as merchant cash advances.

Since a factor rate isn’t annualized, it might be more suitable than APR for loans or cash advances with terms of less than one year.

Most banks and private business lenders allow you to apply for a small business loan online, although some traditional banks might require an in-person visit or phone call. Some lenders even make a lending decision within minutes, especially with same-day business financing.

Answering the following questions can help narrow your loan options, including rates and terms:

• What type of loan do you need?
• How much do you want to borrow?
• How quickly do you need the funds?
• Do you meet the lender’s personal and business qualifications?

Don’t forget to compare lenders before signing the business loan agreement, converting factor rates to APRs if necessary. Read our tips on how to apply for a small business loan to help you get started.