Average Business Loan Interest Rates in 2023

Business loan interest rates affects how much it costs to borrow.

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Average Business Loan Interest Rates in 2023

Written by Jill A. Chafin | Edited by Kurt Adams and Janet Schaaf | September 27, 2023

Average small business loan interest rates depend on multiple factors. The type of business loan, your time in business and credit score all factor in.

Traditional bank loans could go as low as 6%. Online lenders usually are more lax, but you might see interest rates of 60.9% or higher. Knowing business loan rates in advance can help you make the right decision for your business.

Average small business loan interest rates

Business loan typeAverage interest rates
SBA 7(a) loansVariable: 11.5% to 15%
Fixed: 13.5% to 16.5%
Rates vary depending on loan amounts and terms
Traditional bank loans6% to 17%
Business lines of credit3% to 27%
Online loans3.49% to 60.9%
Merchant cash advances1.2 to 1.5 factor rate
Invoice factoring1% to 6% factor rate

Rates accurate as of August 17, 2023.

  Read more about our list of the best small business loans.

Interest rates by loan type

Current business loan rates vary between types of business loans and lenders. Your credit score, annual revenue and time in business will also affect the interest rate you receive.

Because various factors determine interest rates, it’s important to review all aspects of a small business loan before making a decision.

SBA 7(a) loans

The U.S. Small Business Administration (SBA) partners with financial institutions to provide SBA loans to businesses. The SBA guarantees a portion of these loans, reducing risk for lenders. The 7(a) loan is the SBA’s primary lending program for small business owners.

Borrowers can use SBA 7(a) loans for various expenses, such as working capital, real estate, equipment and more.

The SBA limits the interest rate lenders may charge based on the current prime rate (8.5% as of July 31, 2023). The cap to the prime rate varies depending on the type of loan, loan amount and repayment term.

Because of this cap, SBA loan rates are often competitive compared to other types of business loans.

SBA 7(a) variable loan interest rates

Loan amountVariable rate standardVariable rate maximum (with current 8.5% prime rate)
$50,000 or lessBase + 6.5%15%
$50,001 to $250,000Base + 6.0%14.5%
$250,001 to $350,000Base + 4.5%13%
Greater than $350,000Base + 3.0%11.5%

*Variable interest rate 7(a) loans are pegged to the prime rate (currently at 8.5%), the LIBOR rate or the SBA optional peg rate.

Fixed interest rate 7(a) loans are based on the prime rate in effect on the first business day of the month of your loan.

SBA 7(a) fixed loan interest rates

Loan amountFixed rate maximumFixed maximum allowable (with current 8.5% prime rate)
$0 - $25,000Prime + 8.0%16.5%
$25,000 - $50,000Prime + 7.0%15.5%
$50,000 - $250,000Prime + 6.0%14.5%
Over $250,000Prime + 5.0%13.5%

Rates accurate as of August 17, 2023.

Traditional bank loans

Banks tend to have strict eligibility requirements. They tend to require good business and personal credit, two years in business, a business plan, financial statements, cash flow projections and collateral. Because of these high underwriting standards, traditional bank loans tend to have the lowest interest rate ranges and most attractive terms.

Business lines of credit

A business line of credit is a form of revolving funding that businesses can use repeatedly. Like a credit card, you can borrow up to the limit, repay what you borrowed and borrow again. An advantage of a business line of credit is that you only pay interest on the outstanding amount.

Interest rates on business lines of credit vary depending on the lender and whether you offer collateral.

Online loans

Online loans come from lenders without brick-and-mortar locations. These alternative loans are often available to borrowers with less-than-perfect credit, making them generally more accessible than traditional bank loans.

However, these flexible qualifications often mean you’ll receive higher interest rates and less flexible terms with an online lender than with a traditional bank.

Merchant cash advances

A merchant cash advance allows a business to borrow a lump sum against its future credit and debit card sales. Instead of repaying in monthly installments, the lender partners takes a preset percent of your business’s credit card or debit card sales each day or week. This continues until the advance is paid off.

Merchant cash advances charge a factor rate rather than an interest rate. The lender multiplies the advance amount by the factor rate to determine how much interest is due.

For example, if you borrow $10,000 and the factor rate is 1.3, you’ll owe $13,000, including principal and interest. Factor rates tend to be higher than interest rate ranges on traditional bank loans.

Invoice factoring

Invoice factoring allows businesses to unlock cash tied up in unpaid invoices. A businesses can sell their accounts receivable (invoices) to a factoring company, who takes a fee and sends you the remaining balance. You can usually get 70% to 90% of the value of your unpaid invoices advanced to you from the factoring company.

Factoring companies charge a factoring fee — either as a flat fee per invoice or as a variable fee that increases if the invoice remains outstanding beyond 30 days. Invoice factoring tends to be more expensive than other forms of financing.

How do typical business loan interest rates work?

Business loan rates vary for different loan types, lenders and financing arrangements. However, you may come across a few variations of typical business loan interest rates in your search for financing.

Fixed vs. variable interest rates

Interest rates for business loans can be flat and unchanging or fluctuate over time.

  • Fixed rates: The interest rate doesn’t change during the loan term. Fixed rates are typical with standard term loans, SBA loans and equipment loans.
  • Variable rates: Interest rates are subject to change during the life of the loan. Variable rates are often associated with business lines of credit, merchant cash advances and SBA loans.

Budgeting for fixed-rate loans is generally more manageable since your payments never change. Still, varying interest rates could lead to a potentially lower cost of capital.

Annual percentage rates (APR)

Annual percentage rates (APR) are commonly used to measure the cost of financing. Business loans, credit cards, mortgages and other forms of financing use APR to express interest. An APR on a business loan would include the interest rate and associated fees.

Annual interest rates (AIR)

Annual interest rate (AIR) reflects the interest owed each year on a loan. Unlike APR, AIR does not incorporate any fees that may be associated with the loan.

To find AIR, divide the total interest by your loan amount and the loan term length. AIR may be more helpful than APR when you want to calculate the borrowing costs of a business loan over time.

Factor rates

Unlike the rates listed above, factor rates are displayed as decimal figures, not percentages. Factor rates are typically associated with high-risk business lending products, such as merchant cash advances. A factor rate is not annualized, which may make it more suitable than APR for loans or cash advances with terms less than one year.

How much are loan fees?

In addition to interest and factor rates, many lenders charge loan fees. These fees often cover the costs of issuing and administering a loan.

Here are some common fees you may see included with your small business loan:

  • Origination fee: The loan origination fee covers the costs of processing the loan. It includes underwriting, preparing and reviewing the loan application and deciding whether to approve the loan. The loan origination fee may be a flat fee or a percentage of the loan amount, which may range from 1% to 8.49%.
  • SBA guarantee fee: The Small Business Administration charges this fee to guarantee a loan. It usually costs between 0.25% and 3.75% of the guaranteed portion of the loan.
  • Servicing fee: Some lenders charge servicing fees annually to cover the costs of administering your loan. This includes things like customer service, billing and collections. The annual service fees for SBA 7(a) loans range from 0.25% to 0.75% of the guaranteed portion of the outstanding balance.
  • Underwriting fee: A lender can charge an underwriting fee for assessing a business loan application. The amount varies from lender to lender but may be a flat fee or a percentage of the loan amount.
  • Late payment fee: Lenders may charge a late payment fee if you pay past the due date. The fee may be a flat fee or up to 5% of the outstanding amount.

Some fees, such as origination and underwriting, are included in the loan’s APR. Other fees may not be included in the APR.  To calculate the total cost of borrowing, check with your lender to see which fees are included with your APR.

What factors impact business loan average interest rates?

Several factors could impact whether you receive a high or low interest rate.


Small business lenders assess both personal and business credit when reviewing loan applications. If you have a newer company that has yet to build up business credit, a lender may put more weight on your personal credit score.

A higher credit score generally leads to a lower interest rate. Banks may require scores of 650 or higher, while alternative lenders may accept scores in the 500s.

Business finances

Your business’s financial standing indicates your likelihood of repaying a loan, which would impact your interest rate. If a lender perceives you as a high-risk borrower, you would likely receive a higher rate. Be prepared to share your revenue, cash flow and profitability documents.

Small business lenders may have specific revenue requirements, similar to credit score requirements. Should you be approved, you may also need to explain how you plan to spend the loan funds.

Time in business

The amount of time you’ve been in business is also used to indicate how risky you as a borrower may be. Businesses that have been open less than two years are often considered risky when needing a startup business loan because they typically lack capital, collateral or business credit.

Lenders may assign higher rates to these businesses to ensure they get their money back. However, if you don’t meet minimum time in business requirements, you may not be approved at all.

How to get your best business loan rates

One of the best ways to secure the lowest business loan interest rate is to make your business strong and resilient. Here are some tips to improve the likelihood of securing an attractive rate.

1. Offer collateral

Some types of funding may require collateral, such as equipment financing or invoice factoring. Offering collateral when not required could help you receive more favorable rates.

When you provide collateral, you allow the lender to seize the assets you offered if you default on the loan. This reduces risk for the lender and may reduce the interest the lender charges. Secured business loans using collateral generally come with lower rates than unsecured business loans.

2. Improve your personal credit

The higher your credit score, the less risk you are to a business lender. This can translate to a lower interest rate. Depending on your credit score, you may want to improve your credit profile before applying for financing. Some quick ways to build up your credit include:

  • Paying down any existing debt, including credit card balances
  • Making on-time or early bill payments
  • Disputing any errors that currently appear on your credit report. (You may be able to remove those errors as well.)

  Learn more about how to improve your credit score.

3. Build your business credit score

In addition to solid personal credit, it’s essential to keep track of your business credit report. While personal credit scores have a fairly standardized rating system, business credit scores vary depending on the company calculating the score. For example, Equifax uses three numbers for small businesses: a business credit risk score, a business failure score and a payment index.

4. Establish a relationship with a lender

Lenders may give lower rates to borrowers they’ve worked with in the past. Both banks and alternative lenders may be more willing to approve your business loan if you’ve opened a deposit account with the institution. And if you’ve previously borrowed from the lender and made on-time payments, you could have a good shot at getting a second loan.

Furthermore, some banks offer reward programs for members, such as discounts if you decide to take out a business loan or line of credit.

Although circumstances could prevent you from borrowing and banking in the same place, it’s worth trying to do so if possible.

How to compare business loan interest rates

When comparing business loan interest rates, look at the annual percentage rate (APR). This includes the interest rate plus associated fees. Some lenders only provide a simple interest rate when giving a quote. Unfortunately, this doesn’t include any loan fees charged on a monthly or weekly basis.

Comparing factor rates to APRs can be challenging. Lenders who use factor rates determine your total cost by multiplying your loan amount by the factor rate. Calculating factor rates into APRs is ideal for comparing offers to ensure you get the best deal.


Let’s say you’re approved for a $30,000 business loan with a five-year term and a 15% APR. Your monthly payment will be $660, with a total paid interest of $9,610.

Now, shopping around and finding an APR of 10% would reduce your monthly payment by $71 and save you $4,233 in interest.

Ultimately, shopping for the best rate can save you thousands of dollars in the long run.

 Use our business loan calculator to find out how much you could borrow for your business.

Frequently asked questions

Depending on the business loan, lenders may offer the choice between a fixed or variable interest rate.

Fixed rates are generally best for long-term loans, such as commercial real estate or equipment loans. This way, you can plan your budget without any surprises along the way.

On the other hand, a short-term business loan or a business line of credit could benefit from a variable interest rate. This could allow you to borrow money when you see the rate drop without committing to it for the long term.

A good interest rate for a small business loan is between 6% and 17%. However, you could expect to pay 35% or higher with a bad credit business loan.

Shop around to find the best rate for your credit profile. Make sure to include extra costs like origination and servicing fees.

The Small Business Administration (SBA) determines the maximum fixed and variable rates for SBA loans. These rates are tied to the prime rate, the LIBOR rate or an optional peg rate.

Most traditional banks and private business lenders allow you to apply for a small business online. Some lenders even make a decision within minutes.

Before applying, decide what type of loan you need, how much you want to borrow and how quickly you need the funds. Take a close look at your personal and business qualifications, too. This will determine your loan options, including rates and terms.

Don’t forget to compare lenders before signing the dotted line. Make sure to convert factor rates to APRs if necessary.