Interest rates on commercial loans range from the low 3% of a traditional bank to 150% for alternative lenders. SBA 7 (a) loans, one of the most affordable commercial lending products currently available, have loan rates that range from 6% to 8%. While business loan rates may depend on a variety of factors, you'll find that each type of loan product has a typical range in which interest rates typically fall. Ultimately, loan insurers will look at a number of factors together to determine how risky it would be to give your company a particular type of business loan.
In addition to the type of loan you apply for, the amount you can borrow depends on the type of lender you choose. And if you've previously borrowed from the lender and made payments on time, you might have a good chance of getting a second loan. The commitment offer is a way to close a small business when it's clear that it won't be able to pay its debts, but here are 5 factors to consider. In general, more traditional long-term products, such as bank loans and SBA loans, will have the most affordable interest rates, while alternative products, such as cash advances for merchants and short-term loans from online lenders, will generally be more expensive.
Regardless of the lender, remember to evaluate the costs of commercial loans and compare APRs to find the best deal for your business. It's generally difficult to qualify for small business bank loans because you'll need excellent credit, strong finances, and several years in business. However, you'll likely need several years in business, strong credit, and strong business finance to qualify. The SBA guarantees these loans, reducing risk for lenders and making it easier for certain borrowers to approve.
According to data from the Federal Reserve, banks offer the highest average commercial loan amounts, followed by SBA lenders. Converting interest rates on commercial loans to APR is the only way to compare rates accurately, so make sure you take the time to determine what the APR for any loan will be. A security may also be required to secure the loan, which could include assets such as commercial property, equipment, or inventory. Online lenders tend to have more flexible qualifications, and some work with new companies or companies with poor credit.
If you're looking for a smaller loan for short-term expenses, a short-term loan from a smaller bank or an alternative loan might be best for you. Small business loans come in a variety of formats and features, including long-term business investments and payroll coverage when income is low.