For many thriving small businesses, borrowing money is essential, whether you’re stocking up on inventory, covering a cash-flow gap, or investing in growth. Borrowing money comes with an ongoing cost, typically expressed as the loan’s interest rate.
Understanding how business loan interest rates work—and what affects them—can help you compare offers and avoid overpaying. The more you know going in, the easier it is to choose a loan that supports your business instead of straining it.
What is a business loan interest rate?
A business loan interest rate is the amount you pay to borrow money on an annual basis. Rates are expressed as a percentage of the principal amount—what you borrow—such as 6.5%. At that rate, if you borrow $10,000, you will pay $650 a year in interest. A business loan with a higher interest rate will have higher annual interest costs and higher monthly payments compared to a lower-rate loan.
Lenders may quote you an interest rate or an annual percentage rate (APR). The APR illustrates how much you will pay to borrow a given amount of money for one year, including both interest and fees, such as origination fees. Naturally, the APR will be higher because it includes both the interest rate and other costs.
It’s a good idea to check both the APR and interest rate when shopping for business loans. The APR helps you compare the total cost of different loans, while the interest rate shows how much interest you will pay each year over the life of the loan.
Fixed vs. variable interest rates: What’s the difference?
Business loan interest rates are either fixed or variable. A fixed rate doesn’t change, while a variable interest rate can fluctuate over the course of the loan term based on broader market conditions.
Fixed interest rates
Fixed interest rates provide stability because the loan comes with a set monthly payment. Business owners might choose a fixed-rate loan if they prefer predictability and want to avoid the risk of rising rates and higher monthly payments. Fixed business loan rates may initially be higher than variable rates because the lender shoulders the risk of potential interest rate increases across the wider market.
Business term loans, equipment leasing, and merchant or revenue-based financing are often fixed-rate loans. Within the SBA loan program, 504 loans are commonly fixed, and 7(a) loans may start variable but can be structured later as fixed.
Variable interest rates
Variable interest rates may rise or fall throughout the loan term because they’re tied to an underlying index that fluctuates periodically with the market. Variable loan rates may start out low, which initially keeps your loan costs down. But if rates go higher during the loan term, your monthly payments could rise.
Business lines of credit usually come with variable interest rates, and lenders may use variable or risk-based pricing on some shorter-term loans and merchant cash advances.
What factors affect business loan interest rates?
- Loan type
- Lender
- Credit score
- Time in business
- Annual revenue
- Economic conditions
- Collateral
- Industry
Business loan interest rates are based on several factors, most of which center on risk. Lenders generally charge higher rates when the risk of default is greater. On the flip side, small business loan rates are lower when the lender concludes that the borrower is likely to repay their loan as agreed. Here are the factors lenders use to evaluate risk and set rates:
Loan type
Different loan types come with different levels of risk for the lender, which affects the rate you’ll pay. For example, term loans and SBA-backed loans often have lower interest rates because the repayment structure is predictable—and in the case of SBA loans, the government guarantees part of the loan. Meanwhile, business lines of credit are usually variable because they’re designed to be flexible—you can draw funds, repay them, and borrow again as needed.
Lender
The type of lender you choose also influences your business loan rate. Traditional banks and credit unions often offer the lowest rates because they have strict qualification standards and a longer underwriting process when evaluating a borrower’s creditworthiness. Online lenders typically fund loans faster and may accept lower credit scores, but they may charge higher rates to offset the increased risk and speed of funding. In general, the more convenience and flexibility a lender provides, the more you may pay for it in interest.
Credit score
Small business lenders typically check your personal credit and business credit when you apply for a loan. A higher credit score helps you qualify for a small business loan with a competitive interest rate because it shows you’ve handled debt responsibly in the past.
Personal credit scores range from 300 to 850, with 850 being the highest score possible. Business credit scores are measured on a scale of 0 to 100. Anything above 75 is considered a good score.
Credit approval also depends on the details within your personal and business credit history, such as previous delinquencies or bankruptcies.
Time in business
If your business is less than two years old, lenders may see you as a higher risk because you haven’t built up capital, collateral, or credit yet. That can mean higher interest rates—or, in some cases, not qualifying at all. If you’re struggling to find small business financing, look at startup business loans, which are designed for newer businesses. No-doc business loans—fast financing that comes with minimal paperwork but higher loan costs—are another option.
Annual revenue
Lenders look at your business’s financial health to decide how risky it is to lend to you—and that affects your interest rate. Financial statements that show strong revenue, steady cash flow, and clear profitability can help you secure better terms. Be ready to share financial documents and explain how you will use the funds. Some lenders also set minimum revenue requirements, similar to a credit score benchmark, before approving a loan.
Economic conditions
Although business owners can’t control the economic environment, understanding how it influences rates helps you time your financing and shop for the best terms. When the economy is strong, lenders tend to offer better loan rates. Cash flow is steady, risk is lower, and lenders are more willing to compete for borrowers. During downturns, the opposite happens—uncertainty rises, risk goes up, and loan rates may increase.
Collateral
Collateral is an asset, such as real estate or accounts receivable, that you pledge to a lender to secure financing. Your lender can take the collateral and sell it to recoup its money if you default on the loan. Since the collateral lowers the lender’s risk, these loans often come with lower interest rates compared to unsecured loans. Even if the loan doesn’t require it, offering business assets as collateral could help you receive more favorable rates.
Industry
Your industry tells a lender a lot about the risk they’re taking on. The lender can check statistics about your industry’s default rates, predicted growth, potential challenges, and more to determine how likely you are to repay your business loan. The lender then uses the information to set your interest rates. Merchants in higher-risk industries, such as cannabis sales and online gambling, pay higher rates and vice versa.
Average business loan interest rates
Here are the average interest rates on business loans and lines of credit, as of late 2025:
SBA loans
An SBA loan is a type of loan that’s available from a private lender, such as a bank, and partially guaranteed by the US Small Business Administration (SBA). The guarantee protects the lender against borrower default, allowing lenders to offer competitive interest rates.
Rates for SBA loan rates range from about 6.17% to 15.5%, according to The Wall Street Journal. Rates vary with each loan program and lender, and they can be fixed or variable.
Business term loans
A business term loan provides a lump sum upfront, typically with a fixed interest rate. You pay down the balance during the life of the loan, such as 12 months or 10 years. Average business term loan APRs range from 6.7% to 11.5%, per The Wall Street Journal.
Business lines of credit
A business line of credit lets you draw money as needed, up to a specified credit limit. You pay interest only on the amount you borrow and can repay the money over time.
Business lines of credit have average fixed interest rates between 6.47% and 7.06% and average variable rates of 7.39% to 7.92%, according to Bankrate data.
*Shopify Capital loans must be paid in full within a maximum of 18 months, and two minimum payments apply within the first two six-month periods. The actual duration may be less than 18 months based on sales.
Business loan interest rates FAQ
What is a good interest rate on a business loan?
A good interest rate is generally one that’s lower than the average rate for the loan type and one that you can afford to pay. Small business owners can find competitive rates by getting quotes from several lenders and comparing loan products. For SBA loans, business term loans, and business lines of credit, low interest rates tend to be between 6% and 7%.
What is the interest rate on an LLC loan?
An LLC business loan is another name for a business loan. It refers to any type of financing that provides funds to businesses organized as limited liability companies (LLCs).
What are current SBA loan rates?
SBA loan rates can vary with every lender and loan program, but they range from about 6.17% to 15.5%. Rates can be fixed or variable.
