A Guide to Business Loan Rates

Whether you’re an aspiring or long-time small business owner chances are you’ll need a small business loan at some point. Business loan rates are constantly changing, and to get the best current small business loan rates you should know the top five factors that affect the small business loan interest rates assigned to various loan applicants.

1. First things first: Have your business plan dialed in before you apply for a small business loan. A solid business plan is invaluable if you’re pursuing start-up loan funding; it shows you’ve taken the time and energy to map out the operation of your business, and assures lenders that you and your business are an investment worth making.

2. Small business loan rates may be affected by the type of business you operate because some are riskier than others. Start-up businesses will often have higher business loan interest rates than those attached to existing businesses with a demonstrated record of success.

3. For better or for worse, your personal credit history will follow you into the world of small business ownership. Qualifying for a small business loan can prove especially difficult for those with bad credit, and when you do find a willing lender you can expect to pay higher average business loan interest rates.

4. The duration of your business operation is a part of the business loan rate equation, too. Launching a small business is no small feat; making it to the three-year anniversary is an important milestone in the eyes of a lending institution considering a small business loan applicant. When you manage to maintain your business beyond three years you improve your chance of qualifying for the lower current business loan interest rates. The higher business loan rates are most often applied to loans for start-up businesses or individuals who have no prior experience owning and operating a small business.

5. When you outline your business plan (see point #1 above) you’ll have to determine the best legal structure for your small business – S corporations, C corporations, professional corporation, nonprofit corporation, LLC, sole proprietorship, general partnership, limited partnership. Business entities are distinguished by five factors: Personal Liability, Taxation, Ownership (number and type of owners), Formation Requirements, and Formalities (record keeping). The business structure you choose, and the factors associated with it, will impact the business loan interest rates available to you.

Although these five points influence small business interest loan rates, they aren’t the only factors; overall economical outlook, political climate, and the business insurance you carry for your company come into play as well. Invest ample time in reviewing your business loan needs and vetting potential lenders to find the best fit for your business.