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Commercial Loan Rates and Terms: What to Expect

Did you know you could start your own micro-business with as little as $3,000?  Starting a small business and growing it slowly is an amazing side hustle to have in 2022. Especially when your passion eventually sets you free from the grind of the nine-to-five.

However, somewhere down the line, you may need a business loan to help expand your business. It’s important to know what kind of financing options are available for small businesses. This quick and handy guide is going to briefly cover all the technicalities from commercial loan rates to terms and conditions, keep reading to find out more.

Different Types of Small Business Loans

The kind of loan you want depends on the purpose of the loan and on your credit record. Small Business Administration (SBA) loans have the lowest interest rates and can be used to finance a variety of business needs. You can use an SBA loan to buy real estate, purchase equipment, and even refinance existing debt.

Banks offer short-term and medium-term loans for businesses. You can even get specialized loans for equipment, invoice financing, and cash advances.

Interest Rate vs Factor Rate

Interest rates for commercial loans can be quoted in two formats: interest rate and factor rate.

The interest rate is a percentage of the loan’s remaining balance that gets added to the loan at the end of a payment period. These are calculated based on your credit score, your profitability, your industry’s average, and how long your business has existed.

factor rate expresses the total cost of your loan as a decimal. So if you borrow $1 million and the loan, application fees, and interest repayments add up to $1.4 million in total, then the loan had a factor rate of 1.4. These rates incorporate interest repayments and extra fees into the calculation.

Commercial Loan Rates

Commercial loan interest rates don’t only depend on your credit score, business type, and loan amount. The type of lender you use can influence your interest dramatically as well.

Getting a loan from the SBA will probably get you the lowest interest rates available. The catch is that they normally give these kinds of loans to owners who can offer collateral in exchange for the low rate. These typically range from 5 to 8%.

If your business is quite successful a bank may give you a loan at under 5%, but most bank rates for commercial loans will go up to around 13%.

Invoice financing or merchant cash advances start at factor rates of 1.02 and 1.1 respectively but can go up to 60% or more in interest rates. There’s also the option of choosing an online lender like Online loans can have interest rates that range from 7% to 100%.

Choose the Financing Option That Suits You

If you need a loan to repair some equipment, you may be able to lend at a higher interest rate and pay the small amount back in no time. Commercial property loan rates may be small, but if you’re buying real estate you must remember that you’ll be paying the interest for many years to come. Commercial loan rates are important to consider when financing your expansion.

If you’re looking for expansion ideas to build your startup, our page has great ideas for you. Check out our blog to see where you can take your business and start making more money today.


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