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Average business loan interest rates in 2022

Average business loan interest rates in 2022

Three businesspeople in a meeting.

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Many businesses choose to borrow money to finance expensive purchases, invest in growth, or to improve their cash flow. However, borrowing comes at a cost. To know whether borrowing money will benefit your company, you should know what average business loan interest rates look like.

With good or excellent credit, you could see interest rates in the mid-single digits.

Knowing typical rates will also help you spot a bad deal and give you more information to use when shopping around.

What is a business loan interest rate?

Interest is the cost of borrowing money. Interest is typically expressed as a percentage of the amount you borrowed that is added to your balance each year.

For a simple example, imagine you borrow $10,000 for one year at an interest rate of 10{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}. With no payments, at the end of the year, you’ll owe $11,000. $10,000 is the amount you borrowed and the additional $1,000 is the interest that accrued.

Usually, you’ll see interest rates on loans quoted as an annual percentage rate (APR). The APR for a loan reflects interest plus any fees or other charges that you might have to pay, such as:

  • Origination fees

  • Processing fees

  • Underwriting fees

  • Application fees

That means that the APR of a loan is usually higher than its interest rate, but that it provides a more complete view of the cost of borrowing. If you know your loan amount, term and interest rate, you can use a calculator to figure out your business loan’s cost.

What is a factor rate?

Factor rates are another way to express the cost of borrowing money. They’re usually expressed as a decimal. To find the total cost of repaying a loan, multiply the principal by the factor rate.


How to use factor rates

If your loan uses a factor rate, you can calculate your total cost of borrowing with this formula:

Principal loan amount x factor rate = total cost

So, if you borrow $10,000 and the factor rate is 1.2, you’ll have to pay back $10,000 x 1.2 = $12,000.

Additionally, unlike an APR, loans that use a factor rate aren’t amortized. That means your interest amount is calculated based on the original principal, instead of scaling as you make payments on the loan.

That means that you won’t save as much by repaying a loan with a factor rate ahead of schedule. However, some lenders will offer an early repayment discount to compensate for this.

Factor rates are most common with loans where businesses borrow against their accounts receivables, using them as collateral, such as merchant cash advances.

Interest rate

A percentage of the amount you borrowed that is added to your balance each year. May compound on different schedules, such as annually or monthly

Annual percentage rate (APR)

The cost of borrowing including any interest charges (with compounding accounted for) and other loan fees.

Factor rate

The cost of borrowing expressed as a decimal. Multiply it by the principal to get the total repayment cost.

Is a small business loan a variable or fixed rate?

Small business loans can come with both variable and fixed interest rates. It depends on the type of loan that you choose.

A variable interest rate is one that can change throughout the life of the loan. They’re typically based on an interest rate benchmark and move along with the benchmark. Your loan can get cheaper if rates fall but also get more expensive if they rise.

Fixed-rate loans have a single, fixed interest rate that doesn’t change. These offer predictability in your monthly payments.

Term loans, equipment loans, and other lump sum loans have fixed rates more often than not. Things like lines of credit, credit cards, and merchant cash advances are more likely to have variable interest rates.

Average business loan interest rates

The cost of a business loan can vary widely based on the type of loan and lender. According to the Federal Reserve Bank of Kansas City, the average interest rate for all small business term loans in the third quarter of 2022 was 5.39 percent for fixed-rate loans and 6.25 percent for variable-rate loans.

However, because the federal funds rate has risen since Q3 — and other rates tend to rise along with it — these averages are likely higher today.

These are some typical starting rates based on loan type and lender. But note that many lenders don’t publicly disclose the upper end of their rate range — so the rate you’re offered may be significantly higher, especially if you have poor credit.

Business loan/lender type

Interest rate

Traditional banks


Online lenders


Merchant cash advance (factor rate)


SBA loans


Lines of credit


Factors that can affect interest rate

Many factors influence the interest rates — some that borrowers can influence and others that they can’t.

Federal funds rate

Business owners can’t control market and economic conditions. The Federal Reserve sets the federal funds rate, a benchmark interest rate, based on the economy. It tends to raise rates when the economy is overheating or inflation is high and drop them when recession looms.

Because the federal funds rate can be a benchmark for other loans, the rates you’ll pay for new business loans can change as the fed funds rate changes. If you choose a variable interest rate, your rate will change with market conditions over your loan’s life; with a fixed rate, it remains the same.

Your business’s characteristics

Lenders look at a few aspects of your business to predict how risky lending to you might be. 

Some characteristics they examine include:

  • Age: The older your business is, the less risky it will appear to lenders.

  • Revenue: Companies with more revenue and better cash flow can secure lower rates.

  • Industry: Some industries, like food service, have higher failure rates, which may cause lenders to charge higher rates.

  • Business plan: Having a solid business plan that shows how you’ll use the loan to grow and how you’ll repay the debt can help convince some lenders to offer better rates.

  • Credit score: The higher your company’s credit score, the easier it will be to secure a lower rate.

  • Personal financial details: Many lenders will look at your personal credit score and finances, especially if your business is young. Having strong personal credit and finances can help secure lower rates.

The lender type

Different types of lenders offer different types of loans and have different interest rates.

Traditional lenders, like banks and credit unions, offer a variety of loan types and their rates can vary significantly. It’s worth checking with your bank to see if they offer a good deal to borrowers that also have bank accounts.

Online and other alternative lenders often focus on a specific type of loan and a specific type of borrower. You can find great rates from online lenders that focus on companies with great credit. If you choose a lender that focuses on young companies or those with bad credit, rates may be very high.

SBA loans — which are backed by the federal government and administered through both traditional and online lenders — may be easier to qualify for if you don’t have great credit and offer reasonable interest rates. However, they come with a lot of bureaucracy and paperwork. Don’t expect a quick approval if you opt for an SBA loan.


Some business lenders let you select between a secured or unsecured loan. A secured loan is backed by collateral — an asset such as inventory or property — that the lender can seize if you default on your loan. 

Secured loans reduce the lender’s risk, leading to lower interest rates. Unsecured loans have higher rates but don’t require collateral.

How to get the best business loan interest rate

The number one thing you can do to secure the best loan rates is to make sure your business looks like a low-risk borrower to lenders. That means high revenue, strong cash flow and a good credit history. 

Another way to appear low-risk is improving your credit score. Both your personal and business credit can matter. Personal credit is especially important if you’re running a startup or a smaller business. Always pay your bills on time and keep your debts low relative to your income to strengthen your credit.

However, those steps won’t be enough on their own. You’ll need to shop around and compare offers from multiple lenders to find the best deal. Many lenders offer online prequalification tools and other ways to get quotes with just a soft credit pull (which doesn’t impact your credit score).

Even if you’re shopping for a bad credit business loan, it’s worth comparing lenders to try to save some money.

Once you have several quotes, compare them to find the most favorable rate and terms that work for you. You can try negotiating with each lender to secure an even lower rate or simply select the one with the lowest APR.

Another option for lowering rates is to choose a secured loan over an unsecured loan. 

The bottom line

Business loans are one of the best ways to finance your company’s purchases or to deal with cash flow problems. Landing the lowest rates can help your business save money in the long run.

Before signing up for a loan, consider the best type of business loan for your situation and make sure to shop around to compare offers. That can help you secure the cheapest loan possible.