What Is the Average Business Loan Interest Rate?

Learn more about what to expect from your loan rate with our guide to average business loan interest rates.

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Wondering what the average business loan interest rate is? Well, for new fixed-rate bank loans in 2022, it’s about 4.28%―but that number only gives you part of the picture.1 (A very small part, as it turns out.)

Want the rest of the picture? In this article, we’ll give you more context for that number, give you estimates for other kinds of business loans (like online loans and SBA loans), and help you figure out what kind of interest rate you might qualify for.

Average business loan interest rates

As we start talking about average loan rates, we need to make something clear: there really aren’t any stats that average all the business loans in the country or anything. There simply isn’t data averaging microloans from online lenders with multimillion-dollar loans from banks.

Instead, we have to talk about average interest rates for different kinds of business loans (and even that can get hairy, as you’ll see).

So we’ll break down average interest rates on business loans from banks (a.k.a. traditional lenders), online lenders (a.k.a. alternative lenders) and SBA lenders.

Traditional lenders

The nice thing about banks? Many of them report to the Federal Reserve, meaning we can get really concrete numbers.

That’s why we can tell you that as of 2022, the average (median) interest rate on a new term loan is 4.281% for fixed-rate loans and 4.5% for variable rate loans.1

And as of 2022, new business lines of credit had an average interest rate of 4.16% (for fixed-rate lines) or 4.49% (for variable-rate lines).2

Average interest rates for new financing at banks

Term loan (fixed rate) Term loan (variable rate) Line of credit (fixed rate) Line of credit (variable rate)
Median interest rate4.281%4.5%4.16%4.49%

Data effective 10/15/21. Offers and availability may vary by location and are subject to change.

Now, you might be thinking, “Wow, glad I can expect a great interest rate on my next loan!” And we don’t want to burst your bubble, but we do need to give you some more context for these numbers.

So first of all, as we said, these averages are from banks―not online lenders. That means you need to be able to qualify for a bank loan (which is usually harder than qualifying for an online loan) to get these kinds of rates.

More importantly, these averages take into account at least some PPP loans, or loans offered as part of the Paycheck Protection Program. As you may have heard, those loans came with a 1% interest rate. In other words, these averages look much lower than they would in normal years.

And finally, these loans for “small business” include businesses that make up to $5 million in gross annual revenue. As we’ll discuss later, more revenue can mean a lower interest rate. So keep in mind that the average rate for, say, businesses with $200,000 in annual revenue would likely look a lot different.

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Online lenders

Now, as sticky as those bank stats are, things get even messier when it comes to online lenders.

Unfortunately, we haven’t been able to find any verifiable stats on average rates from alternative lenders―just lots of guesses.

That’s probably because online lenders have fewer reporting requirements. And given how high the rates at online lenders can get, they probably don’t want to publish average rates―because they won’t look too good, in many cases.

Plus, many online lenders don’t use interest rates at all. Some lines of credit use draw fees (like Fundbox), and many short-term loans use loan fees (like Square business loans). Likewise, plenty of alternative lenders offer non-loan working capital that never uses an interest rate (such as merchant cash advances or invoice factoring), which only complicates things more.

Put simply, we can’t give you a simple average interest rate for business loans from online lenders. But we don’t want to leave you without any numbers. So let’s look at some general loan cost ranges.

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Typical online lender interest rates

Funding type
Low rate
High rate
Term loan6% interest100% interest
Line of credit5% interest100% interest
Equipment financing2.5% interest40% interest
Invoice factoring0.5% fee10% fee
Merchant cash advance1.1 factor rate1.6 factor rate
Short-term loan6% interest50% interest

After researching dozens of lenders (and even more loans), we’ve gotten a pretty good idea of what you can expect from online lenders―both for low rates and high rates. The table above shows you both the low end and the high end of things from all the lenders we’ve reviewed.

As you can see, there’s a pretty big spread for interest rates and fee rates from online lenders. Rates vary pretty widely from lender to lender, and some lenders have large ranges of potential rates.

But simply put, online lenders tend to cost more than traditional lenders even if they seem easier to access and work with like Lendio, for example. 

That’s why you need to know what it takes to get a lower rate―and we’ll talk about that in just a minute.

SBA lenders

But first, let’s look at SBA loan rates, or rates on loans backed by the U.S. Small Business Administration.

Like with online lenders, we don’t have a good stat for the average SBA loan interest rate―just ranges. But the ranges for SBA loan rates look a whole lot smaller. That’s because the SBA sets maximum interest rates for its loan programs.

So for an SBA 7(a) loan (which is a multi-purpose working capital loan), maximum interest rates have to stick to the following range:

  • Prime + 2.25% to Prime + 4.75%

The maximum on your specific 7(a) loan will depend on your loan size, repayment term length, and loan purpose.

But with a current prime rate of 3.25% (as of October 2021)3, you’re looking at a maximum interest rate somewhere between 5.5% and 8% on your SBA 7(a) loan. Not bad, right?

How to get a great interest rate

So now that we’ve given you some numbers, we’re going to tell you that those numbers really don’t matter―because the average doesn’t tell you much about what kind of rate you’ll personally get. (Again, think of the ranges we showed you on loans from online lenders.)

As you’ve already noticed, interest rates depend on what kind of lender you go with and what kind of financing you choose. But those are just a couple of the factors that go into your rate. Lenders will also consider factors like these:

  • Your personal credit score
  • Your business credit score
  • Your business revenue
  • Your business’s age
  • Your loan’s repayment term
  • Whether you want a fixed or variable interest rate

Obviously you can’t control all those factors. If you need a loan right away, for example, you can’t magically improve your business credit score overnight, and you definitely can’t change your business’s age.

But you can definitely try to get a cheaper financing type (like a term loan or line or credit) rather than settling for expensive cash flow options (like merchant cash advances). Likewise, you can look for lenders that offer low starting rates on their loans and lines of credit.

And you should absolutely work on improving your personal credit score and business credit score over time. Because the better you look to lenders, the more likely they are to give you a great interest rate on your next business loan.

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The takeaway

While the average small-business loan rate for new fixed-rate loans from banks is around 2.7%, the average interest rate from all types of lenders is much harder to pin down.

Generally speaking, we expect traditional lenders (banks) and SBA lenders to have lower interest rates than online lenders.

So if you’re looking for a good interest rate on your business financing, look for a traditional lender or an online lender with low starting rates, choose a term loan or line of credit, and make sure your borrower qualifications (like your credit score) are up to snuff.

Ready to find a loan with low interest? Check out our list of the best low-interest small-business loans.

Related reading

Don’t qualify for a business loan? Get a personal loan instead.

Business loan interest rate FAQ

What is the average rate for a small-business loan in Canada?

Unfortunately, there aren’t any concrete stats that tell us the average rate for a small-business loan in Canada. But we’ve found plenty of lenders that offer rates between around 8% to 20%.

What is the average business loan?

Just like we can’t provide a real stat for the average business loan rate, we also can’t give you a reliable stat for the average business loan size or term length. And frankly, with loans going to businesses ranging from a part-time Etsy seller to a multimillion-dollar corporation, the average wouldn’t tell you that much anyway.

What’s the difference between interest and APR?

Your interest rate simply tells you how much you’ll pay in interest, while your APR (annual percentage rate) shows you how much you’ll pay in interest and fees (such as origination fees) in a year.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Sources

  1. Federal Reserve Bank of Kansas City, “Aggregate Survey Data.” Accessed August 2, 2022. 
  2. Federal Reserve Bank of Kansas City, “Small Business Commercial & Industry Lending Declines in the First Quarter.” Accessed August 2, 2022.
  3. Bankrate, “Prime Rate, Federal Funds Rate, COFI.” Accessed October 15, 2021.
Chloe Goodshore
Written by
Chloe Goodshore
Chloe covers business financing and loans for Business.org. She has worked with many small businesses over the past 10 years, from video game stores to law firms. Those years watching frustrated business owners try to sift through their many options gave her a passion for breaking down complex business topics. She wants to help business owners spend less time agonizing over their businesses so they can spend more time running them.
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