Knowing the costs your business will face can help you find an affordable loan that fits your particular needs. Business loan costs can vary widely between lenders and also depend on factors like your credit score, time in business, revenue and more.
The 2 factors that impact how much a business loan costs are the interest you’re charged to borrow the loan and the fees that you need to pay before, during and after the loan process. They combine to create the annual percentage rate (APR), which is the cost of your loan for every year you have a balance. APRs can commonly range between 5% and 29% although there are many factors that play a role in determining this rate.
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. 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, it 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.
Common fees
Click “show more” to view a table of common fees you’ll face with a business loan.
Financing type
Typical fees
Term loan
Annual
Origination
Documentation
Cheque processing
Late payment
Prepayment
Returned payment
Line of credit
Annual
Cash advance
Draw
Origination
Late payment
Maintenance
Renewal
Returned payment
Canada Small Business Financing Program (CSBFP) Loan
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.
Compare business loans from online lenders
7 typical business loan fees
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.
Withdrawal 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.
SharpShooter Funding Business Loan
Min. Loan Amount: $1,000
Max. Loan Amount: $300,000
Interest Rate: Starting at 5.49%
Requirements: Annual business revenue of $60,000
Borrow up to $300,000
Online loan application
SharpShooter Funding Business Loan
SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days and can show a minimum of $5,000 in monthly deposits ($60,000/year).
Business loans are often amortized, meaning that you pay the same amount each month. Many have a monthly amortization, meaning that you make a repayment on interest and fees each month.
But some come with weekly, bi-weekly or even daily amortization. Ask your lender for an amortization schedule to plan for repayments before signing the business loan agreement.
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
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.
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.
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.
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.
Aliyyah Camp is a writer and personal finance blogger who helps readers compare personal, student, car and business loans. Aliyyah earned a BA in communication from the University of Pennsylvania and is based in New York, where she enjoys movies and running outdoors.
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