Looking for a business loan? Wondering where you will get the lowest rate and the longest terms? While there may be simple answers to these questions, the answers typically aren’t as clear-cut as you might think. Factor in the size of the loan you are looking for, the type of business you run, and the time you are willing to wait for funding and your borrowing decisions might change drastically. Here’s what you need to know when comparing small business loan rates:
Best Business Loan Interest Rates
Typically, the best business loan interest rates come from commercial real estate backed loans. These loan rates are offered at around 4.25% to 4.75% with terms as long as 15 to 25 years.
For non-real estate backed business loans, rates from a bank can be as low as 4% to 5%, with terms ranging from five to seven years maximum, but these are incredibly hard to get.
Based on the current credit climate, banks are very selective when giving out non-real estate backed loans and only lend to those industries that have a low probability of default. If you are a doctor or a dentists, you are more likely to get a bank loan than if you run an auto repair shop, gas station, restaurant, child care center or home health care business.
In general, banks want to make large commercial loans with significant collateral value such as real estate, equipment, or liquid inventory. They work with ‘thick file’ customers – those who have budgets, business plans, and financial statements for the bank to analyze – and they only lend to those businesses that have perfect credit.
Small Business Administration Loan Rates
Small Business Administration Loans are backed by the federal government, resulting in less risk for banks and therefore, lower rates for business owners.
The Small Business Administration loan rates are based on Prime Rate, which currently stands at 3.25% (these rates are adjusted quarterly). SBA loans above $150,000 are capped at Prime plus 2.75%. This means maximum rate a business owner will receive from an SBA loan is 6%.
For SBA 7(a) loans, the government guarantees 75% of these loans above $150,000 and 85% of loans below $150,000. For SBA 7(a) express loans, the government guarantees 50% of the loan (these loans can be turned around much more quickly and therefore have less of a government guarantee).
If proceeds are for working capital, the SBA loan is capped at a 7 year term, while all other SBA loans are capped at 10 year terms. If real estate is involved, the maximum term can be as long as 25 years, but this real estate has to be majority owner occupied.
While SBA loans give business owners some of the best rates available, like a conventional bank loan they are not easy to get. SBA loans can take up to two months from application to funding and require a large amount of paperwork. They also require the business owner to pledge all and available assets as collateral, both business and personal. If you are a thin file customer, or have less than perfect credit, the chance of approval is extremely low.
Fundation Loan Rates
Fundation offers small business owners a healthy alternative to conventional and small business administration loans. At Fundation our rates are determined by risk based pricing – the cost of a loan is based on the perceived risk profile of the particular customer the loan is assigned to. This is one of the many reasons Fundation is able to lend to the underserved small balance commercial loan market.
Small business customers are very heterogeneous in terms of their risk profile. Since there are many different industries that fall under the ‘small business’ umbrella, and no two businesses are alike, Fundation focuses on each customer individually and prices loan to not only to compensate for risk, but to ensure that the customer can make the payments comfortably without putting strain on their cash flow.
The information contained on this page is for general informational purposes only. It is not legal advice and should not be relied upon in making borrowing decisions. Fundation loans are subject to lender approval.
Fundation combines the benefits of a bank loan with the ease and efficiency of an online lender. We offer conventional loans with competitive rates to businesses with varying credit profiles. Our technology allows us to deliver capital in as few as 3 business days through streamlining the collection and evaluation of customer information and conducting the majority of the lending process electronically. As a direct lender, we use our own capital to originate and hold the loans we make, so that we can focus on building relationships with our customers. Our dedicated customer relationship model enables us to understand each unique borrower’s business. This level of service, coupled with our best-in-class products, is why many of our customers come back to us repeatedly for more capital.