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LOW INTEREST SMALL BUSINESS LOANS

March 17, 2020 8:26 pm Published by Leave your thoughts

Low-interest business loan options include SBA loans and online loans.  As a business owner with good personal credit and strong financials, it’s easier to qualify for cheap financing — meaning you can borrow money at a lower annual percentage rate. APR is an accurate measure of the cost of financing.

If you’re looking for the lowest-cost loan

SBA loans are by far your best bet for the lowest possible rates if your business is strong. With the SBA guaranteeing 75% to 85% of the financing, lenders can offer SBA loan rates of about 7% to 9% that are based on the prime rate. But the application process is a major time commitment — we’re talking months — and small-business owners may not have time for that. 

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If you’ve been in business less than two years

Many traditional lenders, such as banks, require at least two years of business history to qualify for a loan.  

If you’ve been in business two or more years

With two years in business, you may have an additional financing option that comes with competitive rates and quick funding. 

If you’re looking for business loan alternatives

Outside of traditional business loans, you can also consider using a personal loan for business or a business credit card. You typically need to have good to excellent credit to get the lowest APRs.

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Personal loan: Using a personal loan for business is typically best for starting your company. Since your company is brand new, you won’t have any business or revenue history, which are two key components that small-business lenders consider. Instead, personal loan providers will qualify you based on your personal credit score and income.

Personal loans also tend to have lower APRs than many online alternative lenders, but defaulting on them could hurt your personal credit score.

Business credit card: Using a business credit card not only gives you access to a revolving line of credit, but you can also earn valuable rewards, like cash back. Credit limits on business credit cards are typically higher than what’s offered for personal credit cards.

Business credit cards are a good option for recurring or everyday purchases. You can qualify based on your personal credit even if you don’t have an established business history. 

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If you are in need of a low-rate business loan, here are the first loans you should consider:

  1. SBA Loan. Many business owners assume that SBA loans are low-interest loans for small businesses that come directly from the SBA. While the first part of this is true, the SBA is merely guaranteeing low-interest small business loans from an SBA-approved lender. The SBA guarantees a large portion of the funds—around 85% of the loan amount—which ultimately allows them to have the best interest rates for business loans. This is great news for small business owners looking for a low-interest rate business loan.
  2. Traditional Bank Loan. Bank business loans are almost always long-term loans with low interest rates. Currently, bank rates on these low-interest business loans range from 2.55% to 5.14% for large national banks, and 2.48% to 5.4% for small national and regional banks.  These low-interest business loans are the most generic and easy-to-understand as far as business loans go. You receive a lump sum of capital that you’ll pay back over a set period of time, with fixed repayments plus interest.
  3. Medium-Term Loan.  Unlike “traditional” term loans, medium-term loans are typically offered by alternative, non-bank lenders. These lenders offer loans that are structured similarly to bank loans, but are different in a few key ways:  They offer slightly smaller loan amounts (up to $1 million), slightly shorter terms (up to five years), and slightly higher interest rates (ranging from 6.5% to 20%).
  4. Business Line of Credit. Though business lines of credit also traditionally come from banks, new, alternative lenders have entered the small business lending space in order to offer this low-interest option to slightly less-qualified borrowers.  With a business line of credit, you’ll gain access to a pool of funds that you can draw from whenever you need to for your business. You only pay interest on the funds you draw, and once you repay them, your credit line will return to its original limit.

Low Interest business loans requirements:

If you’re new to the world of small business lending, then it’s easy to jump into a search for a business loan assuming you’ll find the lowest interest rates on the market. In reality, it’s not always so simple.

The rates and terms of a business loan come down to two things: the details of the business applying for the loan, and the details of the loan itself.

Here are the factors that determine whether or not a lender will offer you a low-interest business loan:

Personal Credit Score

Your personal credit score will play an important role in your business loan application and, as a result, in whether you qualify for low-interest business loans.

Time in Business

A company’s time in business also has a large impact on what interest rates it can qualify for. It’s a simple but important credential. 

Industry

Another aspect of your business that lenders will look at is your business’s industry.

This factor is pretty simple: Some industries are just riskier than others.

Accessibility of the Loan

Most low-interest small business loans, like bank loans or SBA loans, have a longer timeline for application and approvals than other loans.

One way to avoid high-interest business loans is ensuring that you never wait to seek funding until it’s an emergency. Quick business loans are almost never low-interest business loans. If you wait until you absolutely need funding to start your search, your only options will be expensive ones.

Looking for financing to grow your business?  contact First Down Funding for all funding options.

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