good rate on a business loan

What is a good rate on a business loan?

Whether you’re an entrepreneur just getting your business off the ground or the owner of a small business that’s a few years in, there are many ways a business loan can help you manage your cash flow. From covering expenses to solving cash flow problems, hiring or training new staff, or getting an inventory supplier, the capital from a business loan can be used to expedite the growth of your business. When looking for working capital, you’ll want to learn how to get a good rate on a business loan.

In order to get a business loan, you first need to find a lender that will let you borrow funds to purchase what you need for your business.  

However, most lenders will offer different financing products that will require repayment over time. Most business loans have specific loan terms and interest rates. Depending on the lender, the interest rates on the business loan can be high or low. 

Your business also may not qualify for financing from certain lenders based on their loan criteria. Some lenders may use different criteria to decide if they will provide a business loan. The trade-off for securing financing is that you may need to pay higher interest rates.  

Contrary to popular belief, there is no “good rate” for everyone, regarding interest on a business loan. A “good rate” depends on two factors: 

  • The kind of financing that fits your business’ needs
  • What rates your business is eligible for

So, it’s important to not get too hung up on a good rate and simply find the best financing option for your business. 

Are Small Business Loans Fixed or Variable? 

Most lenders have business loans that either has a fixed or variable interest rate. These types of loans have different interest rates attached to them. 

Fixed-rate loans (also called a term loan) are fixed payments based on a specific loan amount and have a set interest rate attached. These repayments are made to the lender on a set schedule. If interest rates seem like they’re going to increase soon, it’s best to lock in your loan at a fixed rate. 

Variable loans have interest rates that change as the market interest rate changes. Having a loan with variable rates means your loan payments will vary over time. If you want to take your chances to see if you can get a better interest rate over time, then variable loans are a good option. 

However, depending on your lender, there are other types of business loans with interest rates or repayment options that are different than fixed and variable options. They may have improved versions of these types of loans as well. Merchant cash advances are another example of business financing offered by non-traditional lenders and may not require conventional interest rates at all. If you need a revolving sum of money, a business line of credit provides a pre-approved amount of funds where you are charged interest rates only on the money you borrow, not the entire amount you’ve been approved.

What is the Current Interest Rate for a Small Business Loan? 

In Canada, the current interest for a small business loan isn’t fixed across the market for all banks. Instead, the rates depend on what the lender decides. 

Different lenders will weigh risk differently and decide how high the interest rate will be for your loan. Lenders use prime rate to determine the interest rate attached to your loan. The better your credit and the larger your business, the more likely you’ll be offered interest closer to the prime rate. 

The financing options for getting a small business loan can range and, so can the interest rates: 

  • Traditional lenders – there are five large banks in Canada, along with other credit unions and smaller banks. These lenders offer many kinds of loans and debt products. The most common loans offered by these institutions are term loans and lines of credit. Their qualifying criteria for loans are usually strict and the application process is lengthy.
  • Alternative lenders– these lenders are often referred to as online lenders since they offer financing products that are different than traditional banks through online platforms. Their qualifying criteria for loans are different than traditional lenders. Often the application process is easier, and funds are delivered to your account quickly. 

How Can I Get a Low-Interest Business Loan? 

To get a low-interest loan from banks and other financial institutions, here are some qualification criteria that you should be aware of: 

Credit history/credit report

In most cases, you will need an excellent credit score to qualify for a business loan from a bank. If you have an average credit score, then you may be able to secure the loan with collateral. Many small business owners use the equity in their homes as collateral. This can be risky because if your business isn’t successful, you could lose your house to foreclosure. Instead of securing a loan with collateral, small business owners should consider getting an unsecured loan, as collateral is not required.

Established business in certain industries

Another reason it’s difficult to get a business loan from the bank is that they typically choose to finance established businesses that have a proven track record of success. Banks are also unable to finance certain industries, so if your business isn’t in one of their accepted industries, you may face hurdles in the lending process.

Business bank account

When you’re looking to apply for a business loan, opening a business bank account is a crucial step. Having a business bank account improves your credibility with customers, suppliers, and lenders alike. It’s also often a required step when obtaining a business loan from a lender, as they will need to deposit your approved funds directly into a business bank account.

Business documentation

For loan consideration, business owners should be prepared to provide their business documentation and business plan to the bank for review. The application process alone can take a long time. Expect it to take weeks or even months to complete the application process. Does your business have that kind of time? 

These criteria make loans from traditional lenders like the banks difficult to qualify for. Since banks view small businesses as a riskier proposition than lending to larger, more established companies.  

This means that many businesses are unable to obtain bank financing at a low-interest rate. Thankfully, these businesses have other financing options with interest rates that may be higher but don’t have the strict eligibility criteria that a bank does.  

How to Grow a Business with the Help of Thinking Capital 

If you’re having a hard time securing the financing that your small business needs to grow, then consider applying for a business loan from Thinking Capital.  

Applying for financing from Thinking Capital is a simple 3-step process. First, fill out an online application, which will take roughly 5 to 10 minutes to complete. Once you have completed the application, expect a verification call from one of our expert advisors in as little as 30 minutes. They will confirm the information you submitted in your application and ask a few additional questions to collect what they need to qualify and approve you for a small business loan. Once you’ve been approved for financing, you can expect to receive your funding in as little as 24 to 48 hours. Your funding will be deposited directly into your business bank account. You can use the funds right away to help you grow your business.

Want to grow your business?

Thinking Capital has business loan options to help you expand your business.

Apply now!