Finding a low interest loan can save your business hundreds – or even thousands – of dollars when you take out financing. But not every business has the time to research the lowest rates it’s eligible for – after all, time is money. To save you time, compare business loan lenders offering low interest rates and find out the typical eligibility requirements below.
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).
What’s considered low interest for a business loan?
A business loan with an annual interest rate of 5% to 15% could be considered as low interest. Rates will vary depending on where you borrow from, but tend to start from around 5% and reach as high as 55%. You could possibly find rates as low as 4% from a bank or a credit union, however eligibility requirements tend to be stricter and applications usually take longer to fill out.
Rates are usually displayed as an APR, which is the annual percentage rate. The APR includes both the interest rate and any fees, and is a good representation of the true cost of a loan.
What other costs should I consider?
The fees you’ll pay in addition to your APR depend on the lender and the type of loan you’re applying for. Carefully read the fine print of your loan contract to avoid these costs taking your business by surprise.
Some business loans come with an origination fee, typically from 1% to 5% of the amount you’re borrowing. The lender typically deducts this fee from your loan amount before your business gets its funds.
Some lenders charge a flat fee to process your loan application, while others calculate the fee as a percentage of your total loan amount.
For a secured business loan, you might also pay for an expert to appraise the value of your business’s assets.
Costs vary widely depending on the asset. Real estate can easily set your business back $300 to $500, while a car evaluation could be free.
Revenue and cash flow. Lenders want to see that you consistently make enough money monthly or annually to easily afford a loan repayment. Most lenders require a monthly revenue of at least $5,000 to qualify for a business loan, while some require an annual revenue of at least $100,000.
Debt load. High revenue doesn’t mean much if your business has several debt obligations already. You should be able to prove that you can easily afford additional debt repayments.
Which types of providers offer the lowest interest business loans?
The lender you choose can affect your loans interest rate. Start your search for a low interest business loan with the following types of lenders:
These are government-backed loans that fund eligible for-profit businesses with up to $10,000,000 in funding. Loan funds must be used for specific purposes. To apply, you’ll need to head to your local bank, credit union or registered financial institution and ask if they offer CSBFP loans. While government-backed, the decision to approve your loan ultimately lies with the financial institution.
Interest rates can be variable or fixed. For a variable rate, the maximum chargeable rate is the lender's prime + 3%. For a fixed rate, the maximum is the lenders' single family residential mortgage rate + 3%. You’ll also have to pay a 2% registration fee, plus the lender may charge any fees that they would typically charge for a conventional loan of the same amount.
Banks offer business loans with low rates ranging from 4% to 15%. They are a solid option for established businesses looking to fund big, complicated projects, like purchasing real estate or acquiring another business.
Young businesses and owners with low personal credit might find it hard to qualify for a loan with a bank. Bank loans can also take several weeks and work hours for approval, which isn’t ideal for emergency expenses.
Online lenders tend to offer low interest business loans with APRs that start at 5.5% – but APRs can go as high as 55%.
Borrowing online isn’t always cheaper than your local bank either. But digital lenders tend to offer wider interest rate ranges with more flexible eligibility criteria. Online lenders also tend to turn around your loan faster, with a few advertising access to funds by the next business day.
The application often takes only a few minutes, making it a decent option if you don’t have time to head to the bank.
Credit Unions are non-profit financial institutions owned by its members. As a result, many offer lower rates and fees, more flexible eligibility requirements and smaller amounts than big-name banks.
You’ll need to join the credit union to qualify for a loan, however. And it can take a couple of weeks to get your funds.
Microloans: Small-dollar loans with competitive rates
Generally — though not always — lenders charge higher rates for smaller amounts. New businesses that need only a few hundred or thousand dollars might want to look into a microloan instead.
Microloans tend to come with lower interest rates than your typical business loan. You can find microloans with a small bank, credit union, peer-to-peer lender or an online lender.
4 tips to qualify for a low interest rate
Put up collateral. Securing your business loan with an asset reduces the risk for your lender, making it more likely to approve your business for competitive rates.
Bring on a cosigner. Don’t have great personal credit? Ask a creditworthy relative or friend to cosign your business loan, minimizing the lender’s risk and maximizing your chances of getting a low rate.
Build your credit score. A long-term solution to a poor credit score is to work to build or rebuild it. You’ll find many ways to increase your credit, including strategically paying off your debts and even just reviewing your credit report for errors.
Wait. Don’t need to expand just yet? The longer you’re in business, the more likely you’ll see approval for a low interest loan.
If you’re not yet sure about your business taking on a loan, look into alternative sources of funding to meet your needs.
Business grants are a popular financing option for non-profits, which can find it hard to qualify for business loans. The government and private foundations also offer grants for small businesses, usually with the aim of promoting a demographic of business owners or serving a charitable cause. Women and minority business owners in particular might want to research this option.
Where to find and how to qualify for a business grant
Startups and businesses looking to fund a one-time project might want to turn to crowdfunding sites. While you’ll typically pay a percentage of the funds you raise as a platform fee, some crowdfunding sites won’t give you anything if you don’t reach your goal. When successful, however, crowdfunding is a low-cost source of financing.
Another alternative to business loans is pitching your business or project to venture capitalists or angel investors. If they think it’s viable, they offer funding in exchange for a percentage of ownership.
Got good personal credit but not enough time in business? A personal loan might be the low interest solution you’re looking for. Personal loans depend entirely on your personal credit and income, and sometimes start at lower rates than business loans – APRs are capped at 60% in most provinces and territories. Personal loans are also often available in smaller amounts. But these products don’t come without risk: you’ll be personally on the hook to pay back a personal loan.
Low interest rates can save your business hundreds – or even thousands – of dollars over the life of a business loan. But not every business can qualify — typically the lowest rates are for established businesses with a high monthly or annual revenue and owners with an excellent credit rating. Before applying for a loan, shop around and compare lenders and find out if you can get preapproval for a loan in order to determine what interest rate you’ll be offered. If rates are unfavourable, consider waiting until your business has been operating longer or has a higher revenue, or work towards improving your personal credit score.
Frequently asked questions
It’s not likely. Your time in business and revenue are important factors for business loan approval. But if you have excellent credit, you might find a personal loan or a startup loan with a low interest rate.
They can be. If your business is in what lenders consider a high-risk industry, you might have a hard time being approved for a business loan. Businesses that aren’t yet a year old, earn less than $5,000 a month, or owners who have bad credit can also have trouble getting a business loan.
It also depends on which lender you apply with. Many online lenders approve loans that banks or credit unions may not.
You’ll likely need to submit at least three months of business bank statements, business and personal tax returns and records of credit card sales. But different lenders and types of financing require different documentation.
Anna Serio is a trusted loans expert who's published more than 800 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Fundera, Business.com, and ValueWalk feature her professional advice, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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