Business loan rates have fluctuated through the years with the prime lending rate. If you need working capital, commercial financial or debt consolidation for your business you have a few choices when it comes to loans.
Business loan rates vary from bank to bank depending on many factors. Some of these factors include the amount you need to borrow, your personal and business credit history, your business revenue and the amount of collateral you can secure the loan with, such as real estate, securities, etc. In addition to applying for business loans at bank, many entrepreneurs looking to start or grow a business apply via the SBA (Small Business Association) where loans of up to $2 Million are available to businesses who qualify.
Before applying for a loan for your business, especially a traditional bank loan, get a copy of your credit report. If your credit score is less than 700 it may be difficult to get approved through either of those avenues. But there are ways to improve your credit score, so you should set out to do that first. Not only will this help you get financing, it can potentially lower your loan rate which lowers the total amount you pay back. You will also need lots of documentation including financial statements, revenue history and projections, collateral proof and more.
When applying for an SBA loan, the factors that are most important are your business income (as of the writing of this post your income may not exceed $2.5 Million) no criminal history, your business profile (a document describing your business), and three years of business and personal financial statements.
Most business loan rates are tied to the prime lending rate which currently sits at 3.25%. When you add in the typical bank’s margin of close to 3% you’ll find that lowest rate you may be able to get for your business loan is a little more than 6%. Of course by shopping around online you’ll find than loan rates may differ as much as 2-3% between different lenders. Most business loan rates float with the prime rate and adjust quarterly. You also may face stiff prepayment penalties of up to 5% if you pay off the loan within the first year and other penalties for paying it off within three years.
Also be aware that there are a handful of different SBA loan types including the microloan, the 7A loan and the CDC 504 program. That’s why it is so important when shopping for the lowest business loan rates that you are comparing the same types of loans.
Business loan rates should not be the only things you consider when looking to finance a business venture. Other types funding is available to you as a business owner including business credit cards, peer to peer lending and more. These other business financing options will also be discussed at this blog.
I am obtaining contracts that have a 30 net on payment, so I am needing a line of credit or a loan to cover the first month of payroll for the new contracts.
This is a special situation you may be able to finance via other avenues. Talk with a financial advisor before you apply for a line of credit with any bank or other financial institution.