Checking Current Small Business Loan Interest Rates Can Save You Money & Prevent Complications
For small businesses in need of working capital, taking out loans is imperative. But while a loan is essential to growing your business, it can sometimes be risky and create greater financial hardships for your company. Finding the right loan option with affordable interest rates and manageable repayment terms is critical. With the right prior knowledge, you can access the funding you need and repay the money easily over time.
Current Small Business Loan Interest Rates
The most important thing to consider when applying for a loan is the interest rates the loan entails. Interest rates vary drastically, from no interest to over 500 percent. In addition to comparing interest rates, it’s important to analyze the repayment terms to ensure they work with your budget. While a loan option may offer low-interest, if it’s a short-term loan, you’ll need to be able to create immediate returns for repayment.
Low Interest Loan Options
• Crowdfunding- Crowdfunding relies on pre-selling products, and allows you to access startup funds at no interest. However, to repay the money, you need to be able to supply adequate products to investors within the arranged timeline.
• Microloans- Microloans offer interest rates of around 3 to 5 percent interest depending on the agency and your personal qualifications. Repayment terms are typically around 5 years, and eligibility is easier than with commercial loans, as they are geared to cater toward new entrepreneurs.
Moderate Interest Loan Options
• Commercial bank loans- Provided you qualify, commercial bank loans provide affordable interest rates to applicants. Interest rates vary depending on eligibility but often hover around 3 and 6 percent. Repayment terms are long-term, often around five years, making it easy to repay over time.
• U.S. Small Business Administration- The SBA’s interest rates are negotiated between the lender and the borrower, but the average is between 5 and 6 percent, depending on the length of the loan.
• Revenue-Based Loans- Revenue-based loans are easy to repay because your repayment is based on a fixed percentage of your monthly sales. Loans are typically between 4 and 5 years, and the percent of income owed is largely contingent on negotiated rates. Basically, you negotiate a small percent of sales with the investor as a method of repaying the loan.
• Private Equity Investors- Similar to revenue-based loans, private equity investors request a chunk of your earnings in exchange for their loan. However, they are investing in a share of the company, which means they’ll continue to profit off of your business throughout the years.
• Online Lending- Online lending often comes with high interest rates, but it largely depends on the company. Interest rates range from as little as 5 percent for a business cash advance to as much as 500 percent for a two-week payday loan. Generally, this option is pursued when in need of emergency money. The repayment terms are easy, with a small percentage of your income deducted weekly or daily, which makes it a viable option for emergency funding.
When applying for a loan, the option you choose needs to depend on your desired repayment terms as well as the interest rates. Shopping around to find the lowest possible interest rates can help you to save money long term. It’s important to weigh the interest rates with the repayment terms to find a loan option that is both cost-effective and easy to repay. For all your working capital needs, contact Credibly.