Searching for a small business loan can often be a difficult and frustrating process. With so many options available, you may struggle to know what’s best for your business – particularly when interest rates can vary so much.
Rates are determined by several factors, such as the loan type and the repayment options. But if you’re looking to expand operations, invest in new equipment or manage cash flow, knowing what to expect is essential in helping you plan more effectively.
In this article, we’ll go over everything you need to know when researching different loans for your company.
The different factors that influence loan rates
Several different factors influence the interest rates that lenders offer to small businesses.
Arguably the most important is your business’ credit score. A higher score reflects better creditworthiness, meaning that you’ll often get lower interest rates. Quite simply, it will mean that loan providers will have better trust in your ability to repay the loan in full.
But the amount of money your business wishes to borrow and the terms of the loan also play a significant role. Some loans may be appealing due to the flexibility they provide to repay a loan over a larger period of time – but these generally come with higher interest rates.
It’s also important to consider the financial health of your business when applying for a loan. Your revenue and profit margins will impact the rates you are offered – you can expect lower interest rates the better your business is performing.
The final factor that influences typical small business loan rates is the type of lender you’re applying to. Small business loans offered by online lenders generally have lower interest rates compared to traditional banks.
Typical small business loan rates
How much you pay to borrow money to fund your business depends on the range of factors we’ve outlined above.
However, unsecured business loan interest rates from Funding Triangle start at 4.8%. These can go up to 15% or even higher from other loan providers.
Meanwhile, traditional banks might offer loans with rates between 3-6%, but these are often exclusively for well-established businesses with strong credit histories. And it’s important to remember that while loan rates can often be lower on longer-term deals, the interest you pay could still amount to more overall.
It’s essential that you also consider whether the loan you’re applying to has a fixed or variable rate. Fixed rates will remain the same throughout the loan term, whereas variable rates could increase or decrease depending on the economy and the wider loan market.
Tips for securing a favourable loan rate
To secure a more favourable loan rate, it’s important to take steps that will help improve your credit score. Paying down any existing debt and ensuring timely payment will help boost your score and mean lower interest rates on loans further down the line.
Also, take the time to compare offers from multiple lenders. Whilst different lenders will try and offer attractive interest rates and payment terms, it’s important to choose one that you know will aid your business rather than harm it.
Finally, make sure to provide comprehensive financial documentation, including business plans, financial statements and tax returns when applying to lenders. The more information you can provide, the better the loan terms you’ll get.
Find the loan for your business today
Understanding the typical loan rates for small business loans will help you make more informed financial decisions.
By considering your credit score, the amount you wish to borrow and different loan providers, you can better navigate the borrowing process.
At Funding Triangle, we provide small business loans with interest rates starting at 4.8%. Whether you need £10,000 or £500,000, you can get approval in as little as 24-48 hours without the need to provide assets or security.
