Small Business Loan Rates & Commercial Loan Terms
With the current economic climate, many commercial lenders are taking a very cautious approach when giving out new business loans. That does not mean that small business loans are not available, nor does it mean that a business owner can’t get a good loan. In fact, there are more options than ever to get the best small business loan interest rates because of the growth of Internet-based lenders. The rise of these lending companies has provided people with the ability to shop around, giving them them the ability to selectively choose the the offer with the lowest rate. With so many choices, the key to getting the best business loan rates is knowing where to look.
Typical Commercial Lending Rates
Commercial loan interest rates vary case by case. However, they are usually determined by a combination of the following characteristics: credit history, business cash flow, collateral, previous bankruptcies, existing debts and the amount you can put down. According to a July report by Bloomberg Businessweek, interest rates for business loans that are smaller in nature (under 100K) typically fall somewhere between seven and eight percent. In comparison, larger loans (over 100K) can generate a business loan interest rate between six percent and seven percent. Learn more about the report here.
How Are Small Business Loans and Interest Rates Determined?
A commercial loan business rate is partially set because of personal creditworthiness, but that isn’t the only factor. Another factor commercial loans rates depend on is the prime interest rate. Banks set the prime interest as a reference rate for many types of loans, including loans to small businesses. Even though the Federal Reserve has doesn’t directly set the prime rate, many banking institutions base their prime rate based on the target level of the federal funds rate. The federal funds rate is designed to keep the economy stable, but it also affects the interest rate for a small business loan. Other factors affecting a commercial loan rate include the economic climate and the risk involved in funding a business. Most experts say a business owner can get a much better rate if all personal debt is paid off first.
Banks have some standard rates and terms for small business loans. According to July figures, small business loans rates for the government portion of a 10-year small business loan are a low 4.3 percent and a 20-year-fixed rate loan are just under 5 percent. There are other non-traditional forms of lending, like peer-to-peer lending with rates ranging from 5 percent to 20 percent.
How to Get the Best Business & Corporate Loan Rates
While the economy is still in recovery, both traditional banks and non-traditional lenders are more inclined to provide a solid interest rate for small business loan. However, you still need to do your due-diligence. It is also important to have a good business plan, figure out your repayment amounts with a calculator, improve your credit score, clear personal debt and develop a relationship with the lender prior to asking for capital. This will increase the likelihood of getting good commercial loan rates.
Understanding Commercial Loan Terms & Repayment Schedules
The commercial loan terms are often determined by the type of loan you apply for. Requirements for a business mortgage are typically five to 30 years. There are also loans that offer shorter term financing for non-real estate endeavors like operations or inventory. These types of business loan terms run from three to 10 years, although the majority of business term loans cap out at seven years.
Do Business Loan Rates & Terms Range By Industry?
Small business loan rates are set by the lender in a case-by-case basis. A riskier business, such as a restaurant or bar, may have a higher loan rate than something like a doctor’s office because they are more prone to fail. The lender also sets the minimum or maximum amount requirements.
SBA Backed Business Loan Terms & Interest Rates
Government-backed loans provide both fixed and variable commercial interest rates with the maximum commercial lending rate coming in two parts: a base rate and a allowable spread. Loans shorter than seven years will have the maximum spread of 2.25 percent. Longer loans have a maximum spread of 2.75 percent. Loans at less than $50,000 have higher maximums.
Small Business Administration loans between $500,000 and $5 million have an interest rate between 4 percent and 6 percent. SBA terms do not have a minimum loan amount, but the typical maximum loan amount is $5 million. The lender pays the guarantee fee, but can pass that to the borrower at closing. SBA loans can be used to help in buying, operating, expanding, or for a start up.
Commercial Truck Financing Rates
Loans for used trucks and equipment typically may involve a smaller loan, but a quicker payoff. There are first-time corporate loan rates also, but they require a reasonably high credit score. In most cases, business loans rates hover around 6 percent.