When seeking financing for your small business, the interest rate is understandably one of the most crucial factors to consider. Small business loan interest rates in Canada depend on the financial conditions of the business, such as how long it’s been operating, current and historical revenue, and personal and business credit score.
Compare the latest small business loan interest rates from direct lenders and brokers.
|Lender||Interest rate||Loan amount & term||Eligibility requirements|
|8.00% – 29.00%|
|12.99% - 39.99%|
|6.60% - 29.00%|
|Fee based, prime starting at 6.33%|
|4.96% - 24.93%|
|(BDC partner)||9% through Futurpreneur, BDC floating base rate + 1.65% through BDC|
According to the Bank of Canada, the average business loan interest rate in Canada is 7.02%. This includes both mortgage and non-mortgage business loans.
Check out the average monthly business loan interest rate from January 2013 to May 2023 in the chart below (data for non-residential mortgages to the personal sector was excluded as of January 2019).
If you think your business would benefit from having access to ongoing financing, a business line of credit might be a better fit than a term loan.
A business line of credit is an open credit account with a set maximum credit limit, where you can borrow however much you need up to the maximum to cover business expenses. You’ll make repayments and be charged interest on any outstanding balance.
Business line of credit interest rates tend to be variable, meaning your rate will change depending on the Bank of Canada’s prime rate, which is regularly adjusted based on market conditions. The rate your approved for typically depends on factors like your personal credit score, business plan, personal business investments and overall financial health.
|Lender||Interest rate||Credit limit||Eligibility requirements|
|8.00% – 29.00%||$6,000 – $50,000|
|12.99% - 39.99%||$7,500 – $125,000|
|From BMO Prime (7.2%) + 2% to 11%||Up to up to $120,000|
|From RBC Prime (7.2%) + 2.9% to 11.9%||Unspecified|
|Variable based on CIBC Prime (7.2%)||Starts at $10,000|
|Variable based on Scotiabank Prime (7.2%)||Up to $250,000, or up to $500,000 with hard security|
|Variable based on TD Prime (7.2%)||Unspecified|
There are many other types of business loans beyond term loans and lines of credit. Generally, if a business loan is secured with the equipment or vehicle that it’s financing, it will come with lower interest rates compared to unsecured business loans.
|Loan type||Typical interest rate||Typical loan amount|
|Business vehicle financing:|
Take out a fixed-term loan to cover the cost of new vehicles for business use, usually using the vehicles as collateral.
|Varies||80-100% of the vehicle’s value|
Borrow up to 100% of the equipment cost, often using the equipment as collateral, and pay it back in installments.
|Relatively low APR comparable to secured business loans.||85-100% of the equipment’s value|
Take out a term loan backed by your business’s unpaid invoices.
|Fee of 2-3% of your invoices’ value||75-90% of your invoices’ value|
Sell your business’s unpaid invoices to a third party at a discount.
|Fee of 10-25% of the invoices’ value||75-90% of your invoices’ value|
|Merchant cash advances:|
Get an advance on your future sales and pay it back plus a fee with a percentage of your daily revenue.
|Fee of 1.2 to 1.5 times your advanced amount||$5,000 to $100,000|
|Canada Small Business Financing Program (CSBFP) loan:|
Apply for a term loan, which is partly backed by a government guarantee
|Varies||Up to $1,000,000|
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.
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.
As a general rule in lending, the more a lender perceives you to be at risk of defaulting on a loan, the higher the interest rate–and vice versa. The following items can impact your business loan interest rate in varying ways.
Loan payments have the biggest impact on your credit score. If your credit repayment history isn’t great, you’ll be perceived as a high-risk candidate, so your business loan interest rate will be higher.
Thankfully, no credit score stays the same forever. Your credit score will increase as you make payments on time and in full and also when you pay off old debt.
Creditors will assess your revenue and expenses to determine if you can reasonably afford financing. The higher your net income, the more favourable you’ll appear in the eyes of lenders.
Your business assets can be used as collateral against a loan to decrease the perceived risk and interest rate. When a loan has collateral, it is a secured loan, and when a loan doesn’t have collateral, it is an unsecured loan.
Lenders may prefer secured loans because they have an asset they can repossess if you fail to repay the loan. Borrowers may prefer unsecured loans because they won’t need to worry about losing significant assets.
The type of loan and the intended purpose of the loan impact the business loan interest rate. In general, short-term business loans and merchant cash advances are viewed as being higher risk so they come with a higher interest rate.
If you’re launching or operating a startup, you are perceived as a riskier investment because the risk of your business failing is high. Startups are riskier because they require more capital, the market is not necessarily stable and the key personnel are new to operations.
When you’ve been in operations for several years, the perceived risk decreases because your operations are secure and you’ve established precious business knowledge.
The lowest business loan interest rates in Canada are reserved for businesses with strong financial circumstances. People that fit the following criteria typically receive the lowest interest rates:
The candidates that meet these criteria have the highest probability of repaying the loan, which is why they receive the best rates.
While your business loan interest rate will be determined by your personal factors such as your financial statements, time in business and both personal and business credit scores, where you apply matters too. Each creditor is unique, which means their risk assessment and approval processes vary.
In general, there are 3 types of business loan providers: financial institutions, alternative lenders and brokers.
There are various meanings behind the term “rates.” The word could mean interest rate, annual percentage rate (APR) or factor rate.
An interest rate is the amount a lender charges someone to borrow money. Usually, an interest rate is expressed as a percentage of the total funds borrowed.
Business loan interest rates in Canada can be fixed or variable, and the interest can be simple or compound interest.
A fixed rate remains the same throughout the life of the loan. This means the percentage and cost do not change throughout the course of the term. Individuals typically choose this option if they want stability and predictability in their loan payments.
Variable business loan interest rates fluctuate based on changes to an index rate. Normally, the index rate is the lender’s prime rate, but it could be linked to other indexes as well. As a borrower, this means your loan payment can go up or down depending on the index rate’s activity.
Simple interest is a fixed percentage of the principal amount that was borrowed. You can calculate the amount of simple interest payable on your business loan using the following formula:
Principal × interest rate × loan term (in years) = simple interest
A business loan with a compound interest rate continually charges interest on both the principal and previous interest charges.
Interest can be compounded on an annual, monthly, weekly, daily or on any other defined time period. You’ll pay more interest with shorter compounding periods. You can calculate the amount of compound interest payable using the following formula:
Principal amount × (1 + annual interest rate)^number of years interest is applied − principal amount = compound interest
The annual percentage rate is the amount of interest charged to borrowers expressed as a percentage for a whole year. Unlike the interest rate, the APR captures additional costs of financing, such as fees. Typically, lenders advertise the APR because it is the most accurate value that reflects the borrowing cost.
Factor rates, sometimes referred to as buy rates, are specific to business financing. It isn’t common to see factor rates. They are most frequently used for high-risk lending products such as merchant cash advances or short-term business loans. Instead of expressing a factor rate as a percentage, lenders usually quote it as a decimal number. The value tends to fall between 1.1 and 1.5. You can calculate the cost of your loan using the following formula:
Factor rate x loan amount = loan cost
The cost of a factor rate business loan is fixed and does not change over time. Because financial products with a factor rate are generally higher risk, the financing cost is typically higher too.
Below are 9 fees you may encounter. Business loan fees vary among lenders, so you may not need to pay all of these.
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.
Getting a business loan can also come with non-monetary costs.
When it comes to businesses and interest rates, understanding the application process and how interest rates work will help when making a financing decision for your business. To learn more about how business loans work, check out our guide.
They can be, though it depends on your personal financial situation. If you have poor credit, a personal loan might come with a higher rate than a business loan — especially if you have other business partners who can qualify for the loan.
It depends on the type of loan you’re applying for. Term loans tend to come with terms ranging from 1 to 5 years, but can sometimes extend up to 7 or 10 years. Short-term loans can come with terms ranging from 3 to 24 months.
The Annual Percentage Rate (APR) of your business loan is how you can see the true cost of the loan. It reflects the yearly cost of having a loan and takes into account the principal amount of the loan plus accrued interest and fees. Because of this, the APR allows you to analyze multiple loans and find one that balances cost and usefulness for your business.
The prime rate is based on the overnight lending rate set by the Bank of Canada, which is the rate banks use to lend to other banks over a 24-hour period. Lenders use this rate to determine the interest rate attached to your loan. The better your credit and the larger your business, the more likely you’ll be offered interest closer to the prime rate.
Some loans with variable interest rates will calculate changes based off the prime rate. This may be done monthly, quarterly or annually depending on your lender and the terms of your loan.
Lenders set their base rates by the market rate, which may be offered with little markup to established businesses with low risk of default. If your business is still developing, you may have to sign a personal guarantee or provide collateral to secure your loan. This will lower your risk, which will then lower your interest rate.
If you’re in the market to get a small business loan then you’ll need a plan to answer these seven questions.
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