How much does a business loan cost?

Expanding your business is exciting, but may require external financing. Before you dive into applications with lenders, it’s smart to research business loan costs. There are a variety of factors to consider when it comes to business financing, and planning can significantly reduce unexpected costs and help maintain financial stability in your business. In this guide, we will explore what you need to know about potential business loan costs.

What determines the cost of a business loan?

Ultimately, business financing is complex. For this reason, business loan costs are dependent on various factors. At a high level, these are the things that can affect the cost of your business loan:

• Interest rate. This one is definitely the most obvious since it is the fee a lender charges for a borrower to use its financing services. There are various types of interest rates to consider which will further affect the cost.
• Business loan fees. There are tons of other fees associated with holding a business loan. Transaction fees, missed payment fees, early repayment fees and origination fees are just a few to consider, but there are many more.
• The lender. Each lender has unique borrower requirements, extended rates, approval processes and loan management.
• Loan purpose. What you intend to use your loan for will impact the cost.
• Collateral. If your business loan is backed by collateral, you’ll usually receive a lower interest rate which reduces the overall cost of financing.
• Financial position. As a part of the assessment process, most lenders will assess your current financial position. The better shape your finances are in, the better offers you are likely to receive.
• Time in business. The longer you’ve been in business, the more reliable and trustworthy you’ll appear to lenders.
• Your personal finances. At the end of the day, the business owner is the one managing the business loan. Lenders often explore the personal finances of the owner to assess their creditworthiness.

The interest rate

The interest rate is almost always the main cost of your loan and will depend on a variety of factors. The major influence will be whether your loan has a fixed or variable interest rate. A fixed interest rate remains the same over the life of your loan, while a variable interest rate changes with the market, though lenders usually have a minimum base interest rate you’ll be charged.

The collateral you provide with your loan will also play a role in the extended rate. Unsecured loans, or loans that don’t require any collateral, will generally have higher interest rates than secured loans. This is because lenders face a higher risk when giving out unsecured loans. If you fail to repay, the lender won’t be able to take the collateral and sell it to recoup its losses.

Your business’s credit score — and your own personal score, if your business is new — will also impact your loan. So will your business plan, revenue, industry and the type of loan you’re seeking. Compare business loan rates to be sure you know the general range lenders charge for interest.

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More on interest rates charged on business loans

The type of loan your business needs will influence how the interest rate is charged. There are plenty of things to know about interest before you get started, so read up on them before you start the borrowing process.

• Fixed interest rate. This rate remains the same for your whole loan term, which in turn keeps your payments the same each time they’re due.
• Variable interest rate. Your interest rate fluctuates throughout your loan term and your repayments can change.
• Factor rate. This is a decimal figure that is essentially a payment multiplier. The interest does not compound and is charged to the principal loan amount. It’s often applied to unsecured, short term business loans.
• Monthly fee. This type of cost structure may be used by invoice financing and factoring companies. The monthly rate is a percentage and is charged to the value of the invoices submitted.

You may be able to deduct the cost of interest from your income, if the interest payment was for a loan made against an insurance policy. You may also deduct certain fees related to your business loan including application, appraisal, processing and insurance fees as well as legal, finder and brokerage fees. See the Government of Canada website for more information.

9 business loan fees

Below are 9 fees you may encounter. Business loan fees vary among lenders, so you may not need to pay all of these.

• Origination fee

  Expect to pay: 2% to 7% of your loan amount.

  Lenders charge origination fees to cover the costs of processing your loan application including verifying information, credit checks and administrative expenses. They typically take your origination fee directly out of your loan amount, so you’ll want to calculate how much you need to apply for to get the amount you want after the origination fee is subtracted.

• Transaction or wire transfer fee

  Expect to pay: $1 to $3 per withdrawal.

  If your loan is issued with a Visa or debit card, you may pay a fee for every transaction executed with your card, especially if you’re withdrawing from another bank’s ATM.

• Wire transfer fee

  Expect to pay: $30 to $80 per outgoing transfer; incoming transfers may cost $10 to $20.

  This fee is meant to cover the extra cost of sending a payment via wire transfer rather than direct debit.

• Late payment fee

  Expect to pay: $5 to $25 or between 3% and 5% of the amount due.

  Lenders usually charge a fee if a repayment is late, typically after a grace period of 10 to 15 days. Read the terms of your loan to learn about your lender’s policy on late payments.

• Insufficient funds (NSF) fee

  Expect to pay: around $50 or between 3% and 5% of the amount due.

  Lenders charge NSF fees if you set up autopay or otherwise authorized them to withdraw an amount from your account that is doesn’t have. It’s typically the same as your lender’s late fee.

• Prepayment penalty

  Expect to pay: Cost varies widely.

  If you settle the whole balance before the end of the loan term or make early repayments, you may be charged fees. Prepayment penalties vary widely depending on your loan type and lender. They can come as a flat fee, a percentage of the amount you owe or change depending on how much is left in your loan term. But don’t worry — some lenders don’t charge prepayment fees.

• CSBFP registration fee

  Expect to pay: 2% registration fee, plus the lender may charge any fees that they would typically charge for a conventional loan of the same amount.

  The Canada Small Business Financing Program (CSBFP) requires all lenders to pay a registration fee over and above the fees charged by their participating lending institution.

• Administration or service fee

  Expect to pay between $50 and $100 per month for a loan under $250,000.

  Lenders may charge a monthly fee to cover the cost of monitoring and administering the business loan. The administration fee depends on the size of the business loan.

• Due diligence fees

  To finalize a loan application, you may have to pay for credit reports, audits or disbursements, among other things.

Unexpected business loan costs

Getting a business loan can also come with non-monetary costs.

• Time. The amount of time you spend meeting with lenders, filling out applications and corresponding adds up.
• Opportunity cost. Another non-monetary cost is the opportunity cost of pursuing one business loan over another. For example, banks usually have the lowest interest rates, but they are much slower to approve business loans. Online lenders usually have higher interest rates, but they are much faster to approve loans. If you decide to wait weeks or months to get approved for a bank business loan, you may save on interest, but you may lose profit during that time, especially if you have immediate use for the funds.

Compare business loans from online lenders

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Name	Product	Interest Rate	Loan Amount	Loan Term	Minimum Revenue	Minimum Time in Business	Loans Offered
OnDeck Business Loan		9.99% – 29.00%	$5,000 - $300,000	6 - 18 months	$100,000/year	6+ months	Secured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months with a minimum annual gross revenue of $100,000. OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.	Go to site More Info	Compare	loading Fetching your data...
Loans Canada Business Loan		6.60% - 29.00%	$4,000 - $500,000	3 - 60 months	over $10,000/month	100 days	Unsecured Term	To be eligible, you must have been in business for at least 100 days, have a Canadian business bank account and show a minimum of $10,000 in monthly deposits ($120,000/year). Loans Canada connects Canadian small business owners to lenders offering financing up to $500,000. Complete one simple online application and get matched with your loan options.	Go to site More Info	Compare	loading Fetching your data...
Merchant Growth Business Loan		12.99% - 39.99%	$5,000 - $500,000	3 - 12 months	$10,000 /month	6 months	Unsecured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months and have a minimum of $10,000 in monthly sales. Merchant Growth offers financing tailored to business needs. It specializes in providing capital based on future cash flows, but it also offers fixed solutions. Fill out an application within 5 minutes and get your funds within 24 hours.	Go to site More Info	Compare	loading Fetching your data...

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Common business loan fees by financing type

Click “show more” to view a table of common fees you’ll face with a business loan.

Bottom line

Taking out a business loan is a big step. By calculating the cost of your loan options, you’ll be in a good position to make a smart borrowing decision that will benefit your business for years to come. However, there are a number of other factors that you need to consider when borrowing a business loan. Take time and do your research before locking into a financing agreement. Read up on how business loans work so you know exactly what to expect when you apply.

Frequently asked questions

• What is the current interest rate on a business loan?

  Unfortunately, there is no set interest rate for a business loan. It will depend on the type of loan you’re looking to get, the security you provide and how the interest is calculated. You can view the comparison table above to see the starting rates for some lenders.

• How can I compare business loan costs?

  The tool most businesses use to compare loans is the APR. This gives an overall view of the cost of each loan per year, which makes it an excellent comparison tool. You should also make sure the fees you’re being charged, as well as the loan amount and term, suits your business’s needs. And with every comparison, make sure your business can afford the monthly repayments before signing on for a loan.

• How long can you get a business loan for?

  Business loan terms can be as long as 10 years or as short as one month. It all depends on the type of loan and the lender you choose to work with.

• How much will a $100,000 business loan cost?

  The cost of a $100,000 business loan will depend on your repayment terms, your business’s qualifications and the lender’s rates. However, our guide on business loans of $100,000 can give you a good idea on what to expect as far as costs are concerned.