How much is the interest when you get a Loan for Business?

If you have landed on this page, you are probably looking for a loan to fund your business premises. You need to understand that interest charges are associated with borrowed money. Therefore, you would prefer a deal that offers the lowest interest rate as a business owner. In this article, I will seek to demystify business loan interest rates so that you can get the best loan for your business premises. 

Here is everything you need to know about the interest rates charged on various business loans. 

What is an Interest Rate?

Unfortunately, there are no lenders across the globe who are in the business of offering loans for free. In other words, after you access a loan from a lender, they will be expecting you to repay the loan with some extra charges commonly known as loan Interest. In other words, the amount of money that lenders will charge you to borrow money from them is known as interest. In most cases, it is represented by a certain percentage that differs from one institution to the other. When you take a small business loan, the interest you pay is usually determined by multiplying your total loan or the principal amount approved with the interest rate. 

Banks use a process known as amortization to ensure that you will be paying a similar amount of funds throughout the loan period. However, if you fail to repay the loan premiums as agreed upon, your loan interest charges may change. The aspect is linked to the fact that the funds used to repay the loans reduce the principal, not the interest. 

Average Interest

The percentages used to calculate the loan or the interest paid depends on the policies adopted by lenders. However, on average, if you access a loan from the following facilities, these are the interests rates you expect.

Type of LoanInterest rate
Bank loan2%- 13%
SBA loan3.75%-10.25%
Online business lender7%-100%
Invoice factoring13%-60%
Merchant cash advance20%-250%

How to compare Rates

Many factors determine the interest rates used by different lenders to issue funds. Some of these factors include the profit margin, the repayment period, the collaterals in question, and the type of guarantors of each loan. Therefore, different lenders use different interest rates to calculate the number of premiums to be paid by borrowers. This should be your first concern when you are looking for a potential lender.

Other  Factors

 Apart from checking the loan amount you qualify for; you need to check on the interest charges accrued to your loan. This is critical as it will help determine whether you will be able to fund the loan if your investments fail to generate profits within the given grace period. In addition, you need to consider other factors that might affect your rate. For instance, some lenders issue funds with a small interest rate on the condition that the loan has to be repaid within a short period. However, if you can comply with such terms, this is the loan you should consider.

In a nutshell, the amount paid to money lenders is known as interest. It is usually expressed as a percentage of the amount of funds borrowed. Lenders usually factor in various aspects that cause their interest rates to differ. Therefore, as a business person ensure that you can comply with the set rules and the interest rate embraced by your lenders before filling out the loan application form.

Vivek is a published author of Meidilight and a cofounder of Zestful Outreach Agency. He is passionate about helping webmaster to rank their keywords through good-quality website backlinks. In his spare time, he loves to swim and cycle. You can find him on Twitter and Linkedin.