Small business owners seeking a loan have a myriad of options. Since it can be difficult to choose the best one, many business owners hire business loan brokers for guidance. After all, finding the right business loan to fit your small business needs is half the battle. The other half lies in the repayment terms and interest rates involved with your loan. A business owner should be familiar with the common characteristics of business loan terms and rates. To make this process easier, here are typical business loan terms and rates that you need to know.
SBA 7(a) Loan
The SBA 7(a) loan program is one of the most popular business loans for small businesses due to its affordability and flexibility. For starters, an SBA 7(a) loan term can last anywhere from 5-25 years. The various rates offered by SBA 7(a) lenders rely on both the loan size and repayment term. All SBA 7(a) loans include a 5.25% base rate, with a markup anywhere from 2.25-4.75%. As a result, the current maximum interest rate ranges from 7.50-10.00%. Always compare interest rates to set yourself up for future success. The SBA 7(a) loan program is a very common financing option. It is important to be aware of the terms and rates associated with it.
Traditional Bank Loan
Another option is for loan seekers who want a truly “typical” bank loan: a traditional bank loan.These can come from a small local branch or a large national branch. The terms and rates between the two vary slightly. Big banks typically offer higher interest rates. The average range is anywhere from 6-13%, with a 3-25 year repayment term. Small banks average less with interest rates of 6-10%. Repayment terms range from 5-30 years. When it comes to traditional bank loans, you will have to choose a shorter loan term or lower interest rates between big and small banks. Regardless, a traditional bank loan is a viable option and worth knowing for anyone seeking a truly “typical” business loan. For this reason, it is wise to review their typical terms and rates.
Merchant Cash Advance
A merchant cash advance, while not technically a loan, is a quick financing option available to loan seekers. Due to the nature of merchant cash advances, they are easily one of the most expensive, albeit quick to obtain loans out there. The lender is repaid through a portion of credit and debit card profits, calculated through a factor rate. The factor rate ranges from 1.14 to 1.48, which is multiplied by your loan amount to calculate how much you will owe in the end. Converted to APR, these rates start around 15% at the lowest end. Despite a generally quick repayment term of 3-18 months (depending on your business), the higher rates in exchange for quick credit makes this an expensive option. Nevertheless, business owners achieve their goals with merchant cash advances. Because they are popular in business, company owners need to review their typical loan terms and rates.
Business Line Of Credit
When a business has unpredictable costs ahead, a business line of credit is an often sought after solution. Many business owners consider the various types of SBA line of credit solutions. You can imagine your business line of credit as a credit card for your company, albeit one with interest fees regardless of on-time payment. A business line of credit can be set up with terms as short as 6 months to as long as 5 years. During this time, you will be responsible for monthly payments that must be paid in full to avoid additional costs- just like a credit card. Standard interest rates are dependent on your credit score, but tend to fall between 7 and 25%. For a business that expects fluctuation and unpredictable costs, a business line of credit is a much more flexible business loan option. Thus, it is worth investigating their typical terms and rates.
Short-Term Online Loan
Similar to the merchant cash advance, short-term online loans provide quick credit with hefty interest rates. As suggested by the name, the term length of short-term online loans tend to be as little as 3 months, up to around 2 years. For these loans, your business’ profitably and your credit score will greatly influence the interest rate. Profitable businesses and creditworthy individuals can still experience rates as high as 15-25%, whereas riskier lendees can receive an interest rate as high upwards of 90%. Sometimes, a business finds itself in need of quick cash. A short-term online loan is a feasible option for those instances, which is why you should review their typical business loan terms and rates.
As someone seeking a business loan, it is important to know your options to compare terms and rates. Traditional businesses can work with the SBA 7(a) loan program and its pre-determined rates. To obtain a modest, long-term loan, you can get a traditional bank loan from any branch in your area. Loan seekers unconcerned by interest rates and in need of quick credit pursue a short-term online loan, or a merchant cash advance. Lastly, a business line of credit provides a “company credit card” of sorts, allowing you to make payments month-by-month based on your spending plus interest. Knowing what is out there is the first step in acquiring a business loan, so use this resource of typical business terms and rates to your advantage.