The best small business loan rates in 2018
The current interest loan rates are completely different from what we had in the past 10 years. After the great recession, banks, which were the main financial institutions that provided loans to small business owners imposed high restrictions on borrowers and this made it difficult for businesses to access traditional bank loans.
This led to businesses applying for loans with direct lenders, who also did this at a cost. This makes the current business loan rates higher compared to the rates before the recession. However, the increase in interest rates has made funding much easier and accessible. For instance, small business administration, SBA loans are attractive due to their low interest rates. However, it may not be easier for you to qualify for an SBA loan when compared to online lenders. It can also take weeks for the funds to be approved. The current business loan rates depends on several factors including your personal and business credit scores, the business profitability, the number of years of operation, among others.
Best business loan Interest loan rates 2018
As a business owner, there are so many service providers with different borrowing options out there. This makes it hard to track the cost of each and every type of loan. If your business is in good standing and you are of ‘good character’, you can easily qualify for more affordable options. Here are the two most affordable business loan rates that we currently have;
- Bank loans
With traditional bank loans, the loan interest rate can be as low as 4%. The only problem comes on the requirements for you to qualify for the loan. Even the most established of businesses can have a rough time getting a business loan from banks.
- SBA loans
Since a portion of the loan is guaranteed by the government, it is easy to qualify for an SBA loan. This is because they are less risky for the lender. The current SBA loan rates ranges from 7.25% to 10% APR. To qualify for an SBA loan, you should be in business for at least 2 years, have a credit score of more than 680 and have $10,000 in revenue in the last one year. You can borrow a minimum of $30,000.
Less affordable interest loan rates 2018
As a business owner, you may know that the most expensive loans are the ones that you can easily qualify for. You can opt for these types of loan options when you need working capital for your business. They are also convenient since they do not involve lengthy paperwork processes and they also have fewer requirements. The funds can be approved as soon as you need it. They can be convenient if you do not qualify for cheaper loan option. These types of loan include:
- Merchant cash advances
Lenders of merchant cash advances will advance the amount you need, which is required to be paid with a percentage of your daily credit card receipts. It is easy to qualify for a merchant cash advance, but these daily deductions may also affect your cash flow.
- Short-term loans
Most lenders provide short-term small business loans with a repayment term of between 3 and 18 months. You can easily qualify for a short-term loan compared to traditional bank loans and SBA loans. But apart from the interest rates being high, you also need to have a good credit history. Besides, you should be operating a profitable business.
Types of loan interest rates
Small business loans are as important for the business owner as the business itself. They ensure smooth running of the business and growth as a long-term goal. There are many lenders who provide business loans both online and in- store, making the loans very accessible. But of course, the loans are not provided for free. In exchange for accessing funds to run the business, you will be charged an interest rate. The most complicated thing is that lenders explain the cost of the loan in different ways. With so many terminologies used, it can be difficult for you to know whether you qualify for the loan or not. In simple terms, here are some of the ways that lenders explain loan costs in terms of rates.
- Simple interest rate
This is a common way used by lenders to quote the cost of a loan. This is the amount that the lenders charges on top of the principal amount. What determines simple interest rates is the amount you are borrowing, the loan term and the annual interest rate.
- Compound interest rate
This is a more complicated rate of interest. Here, interest is charged on the initial principle including any accumulated interest. Lenders can compound loans daily, weekly, monthly or yearly.
- Annual percentage rate
Annual percentage rate, or simply APR is a more comprehensive way of explaining the loan cost. This is the annual percentage rate including any fees charged. The loan repayment term is one of the considerations when calculating APR.
- Factor rates
When shopping for the best loan product for your business, you might have come across the term factor rates. Factor rates are common with merchant cash advances and short-term loans. They are expressed in decimal form, but there are also lenders who give factor rates in form on percentages. The rates range from 1.1 to 1.5 depending on the time in business, average monthly sales and your industry.
Additional fees that can affect business loan rates
When considering how much a business loan you want to apply for can cost, do not only restrict yourself on the principle and interest rate. There are additional fees that you also need to consider. Bank and SBA loans have many of these charges since they provide large loan amounts, which increase their risk. Some of the common small business loan fees that you might come across include:
- Application fee
You may find lenders who charge a fee for processing your loan application. This fee is non- refundable, even when your application is not approved.
- Guarantee fee
Business owners who apply for SBA loans should expect a guarantee fee. This fee is paid by the borrower for every loan issued. The fee amount depends on the total amount guaranteed by SBA and the loan maturity period. The amount ranges from 0.25% to 3.75%.
- Origination fee
This is the fee that lenders charge for the time and effort they take to process a loan. Origination fee ranges from 1-9% with most lenders charging 1% to 2%. The fee is usually deducted from the loan amount.
- Processing fee
Also known as an underwriting fee, the amount is compensation to the lender for reviewing and approving your application. Lenders charge processing fee for up to 5%.
- Service fees
The relationship with your lender does not end once you receive the funds in your bank account. The lender also has to provide customer service and collect payment, which all take time and resources. Your lender might charge you for these services.
- Prepayment fee
This is the amount charged when you pay the loan before maturity. It is a penalty that the lender imposes for the interest rates lost when you pay off the loan early. This fee ranges from 3% to 5% of the loan amount.
- Late payment fees
Failure to repay the loan on time will also attract a fee. You can still avoid the charges by making timely monthly payment.
For you to get a business loan product with the best interest rates, shopping around can come in handy. Even if your credit score isn’t attracting or your business is yet to be established, it is not impossible to qualify for low interest business loan rates. The rates of interest depend on many factors and lenders will always fund your business when they want to make money. It only takes time and patience for you to get the best small business loans that won’t cost your business.
Joshua is a financial lawyer who plans on writing a book about his experience on debt collection laws and lending terms and conditions. He is currently one of the senior partners at his law firm but wants to take more time off for his writing.
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