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Compare small business loan interest rates
Find out what some of Canada's online lenders offer in interest rates and how to qualify for them.
Compare small business loan interest rates
|Lender||Interest rate*||Min/Max Loan Amount||Key Features|
|SharpShooter||Fee based, Prime pricing starting at 9.00%*||$500 - $500,000|
|Merchant Growth||12.99% to 39.99%*||$5,000 - $500,000|
|Loans Canada||Prime Pricing from 9.00%, Long term financing from Prime + 2.00%*||$2,000 - $350,000|
|OnDeck||8.00% – 29.00%*||$5,000 - $300,000|
|Lendified||Approximately 8.00% – 18.00%||$5,000-$150,000|
|Lending Loop||Starting at 4.96% per year||$1,000-$500,000|
|Company Capital||6.87% - 29%||$5,000 – $100,000|
Business loan interest rates by type of lender
Lenders consider various factors when you apply for a business loan. For example, lenders may consider the loan’s purpose, financial statements, amount of time in business and both personal and business credit scores.
Creditors will gather the necessary information about a business and calculate an interest rate. The rate you receive depends on the loan you’re applying for and the lender you’re applying with. Each creditor is unique, which means their risk assessment and approval processes vary.
In general, there are three types of lenders: financial institutions, alternative lenders and private lenders.
- Financial institutions. These include banks, credit unions and other traditional lenders. They tend to have the best terms and rates available on the market, but the requirements for approval are strict. As a result, many small businesses struggle to meet the criteria.
- Alternative lenders. Online lenders, crowdfunding and peer-to-peer lending fall under this category. The approval requirements of alternative lenders tend to be more lax. As an example, collateral is not often a requirement. However, the lender is taking on more risk, which means interest rates may be higher and terms may be less flexible.
- Private lenders. These are individuals who are in the business of lending money but are not part of a regulated market like financial institutions and alternative lenders. An example of a private lender is a friend or a family member. Since private lenders do not operate within an established market, the interest rate and terms can be anything the borrower and lender agree to. If you choose to work with a private lender, be sure that you understand everything before taking the loan.
What’s a good business loan interest rate?
Unfortunately, there isn’t a one-size-fits-all solution for business loan interest rates in Canada, because rates highly depend on the health of each business. Generally, banks offer the best interest rates, but they do not publish their rates online.
Online lenders tend to have higher interest rates than banks, but they are also less strict with their eligibility requirements.
Who qualifies for the lowest rates?
The lowest interest rates are reserved for individuals in the best financial circumstances. People that fit the following criteria typically receive the lowest interest rates:
- Good or excellent personal credit
- Stable, positive cash flow (as opposed to seasonal, cyclical or negative cash flow)
- Excess net income that will comfortably cover loan payments
- In business for at least two years
- Able to provide collateral
The candidates that meet these criteria have the highest probability of repaying the loan, which is why they receive the best rates.
Five tips for getting a competitive interest rate
- Check your credit. Business credit scores are important, but lenders tend to focus on personal credit scores. Before applying for a business loan, review your credit report for errors and opportunities for improvement.
- Improve your legitimacy. Applying for a business loan is almost like a job interview. One of the most important things in a job interview is verifying legitimacy. Working with a bank is no different. Ways to improve your business’s legitimacy include preparing a business plan, separating your personal and business finances and presenting proper financial statements. If you can impress a potential lender, you have better odds of approval.
- Offer collateral or a lien. Many business loan lenders ask for a personal guarantee. Instead of committing to a personal guarantee, you can offer collateral or a lien on the assets of your business. Not only will this reduce your interest rate, offering collateral and liens can be used for further negotiation.
- Shorten the term. Lenders want their money returned to them sooner rather than later. By shortening the term, you’re reducing the risk and making the offer more desirable to the creditor.
- Obtain a few offers. It’s never wise to accept the first offer. Instead, obtain a few offers from various lenders. From there, you can compare and negotiate to get the best offer. Try not to rush the process either. You will likely be committed to a business loan for several years, so take the time to choose the best offer.
How do small business loan rates work?
There are various meanings behind the term “rates.” The word could mean interest rate, annual percentage rate (APR) or factor rate.
What affects my interest rate?
A basic finance principle is risk equals reward. The higher the perceived risk, the more interest lenders charge and vice versa. The following items can impact your interest rate in varying ways.
Business loan fees
Interest rates are easy to compare but don’t forget about business loan fees. Here are some of the common fees you might incur when taking out a business loan.
|Origination fee||2% to 7% of the loan amount||When your lender disburses your funds, this fee is either added to your loan amount or deducted from your funds before you receive them.|
|Referral fee||Varies||If you take out a loan by using a connection service or third party organization.|
|Canadian Small Business Financing Program (CSBFP) registration fee||2% of the total amount of the loan||When your lender disburses your funds, this fee is either added to your loan amount or deducted from your funds before you receive them.|
|Late fee||Either between $5 to $25 or 3% to 5% of your loan amount||This fee applies if you miss a payment. Many lenders have a grace period before charging the fee.|
|Insufficient funds fee||Around $50||This fee applies whenever your business’s bank account doesn’t have enough funds to cover the payment.|
Four factors to compare in addition to interest rate
On top of fees, there are other factors you might want to consider before agreeing to a business loan:
- Down payments. Business loan lenders may require you to make a down payment. This is common for equipment loans, mortgages and vehicle loans. Keep an eye out for loan-to-value ratios when shopping for financial products. This ratio is the maximum amount a lender is willing to contribute towards financing. The remainder is the minimum you must put down.
- Personal guarantee. Unsecured business loans usually require a personal guarantee from the business owners. A personal guarantee means that you agree to repay the loan if your business cannot afford to repay it. A lien may be put on your personal assets as well. Accepting a personal guarantee can result in more favourable loan conditions, but it’s a greater risk to you.
- Loan term. If you’re getting a loan with interest, how long you have to pay back your loan affects your total loan cost just as much as the APR. Longer terms can make your loan more expensive but lower your monthly repayments. To keep down the total cost, try to avoid unnecessarily long loan terms.
- Business objectives. At the end of the day, you need to consider if the loan will achieve your business objectives. It’s easy to hone in on details and forget about the bigger picture.
Compare small business loans
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.
Frequently asked questions about small business loan interest rates
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