A traditional lender like your local bank or credit union is invariably going to be able to offer you the lowest interest rate on a small business loan. That’s because they tie their APRs directly to the federal funds rate – the lowest legal amount of interest lenders can charge on commercial loans (which changes with some regularity).
However, it can be difficult to get approved for a small business loan through traditional lenders. Unless your company already has well-established credit and a significant amount of annual revenue, an online lender is going to be your next best option. The interest rates are usually slightly higher, but the borrowing requirements are less stringent and the funds disbursement is much faster – sometimes within 24 hours of being approved.
Ultimately, the best rate for you is going to be the one you can get approved for — and that will depend on how your business matches up with a particular lender’s borrowing requirements. To find the best possible rate you can be approved for, you’ll need to apply through multiple lenders and then compare their offers.
Money360’s Top Picks for Best Small Business Loan Rates
These lenders consistently provide the most favorable loan terms to small businesses, including reasonable interest rates, fast funds disbursement, and flexible repayment options.
Best for Businesses With Credit Scores over 600
Best for Businesses With Credit Scores Under 600
How I Found the Best Small Business Loan Rates
I evaluated each lender on the following criteria:
- APR range: Since the focus here is on the best loan rates, I examined the APR range for each lender, selecting those that consistently offered the lowest rates to borrowers — that is, as close to the current federal funds rate (0.75%) as possible.
- Minimum requirements: Each lender is going to have their own borrowing requirements. That includes credit score, time in business, and annual operating revenue. If you don’t get approved by one lender, don’t be disheartened. You could still get approved by another.
- Borrowing limit: Getting the lowest rate on a loan may not matter all that much if you’re not able to borrow what you need. The lenders featured here all offer generous borrowing limits of $100,000 or more.
- Funding speed: Being able to get money quickly when you need it is a must. All of the lenders on this list offer funding in 10 days or less.
- Loan repayment terms: Depending on the amount you decide to borrow and your business’s cash flow, you may need a shorter or longer repayment term. All of the lenders listed here offer several repayment options, so you can choose the loan term that meets your needs.
The Best Small Business Loan Rates
|Funding Circle||$500,000||5.49–27.79%||2+ years in business, no minimum annual revenue, 620+ credit score|
|SmartBiz||$350,000||6.25–7.25%||2+ years in business, $50,000 in annual revenue, 600+ credit score|
|Kabbage||$150,000||20–99%||1+ year in business, $50,000 in annual revenue, minimum credit score varies|
|OnDeck||$500,000||Line of Credit: 13.99%-39.99%|
Term Loan: approximately 30-50%
|1 year in business, at least $100,000 in annual revenue, 500+ credit score|
Best for Businesses With Credit Scores Over 600
Funding Circle offers the lowest rates of any online lender, with APRs starting at just 5.49%. It sets the minimum credit score requirement a bit higher than most at 620, however, and to get the most optimal rates, you’ll need a score of 750 or above.
Who it’s good for: Unlike the other lenders on the list, Funding Circle has no minimum annual revenue requirement. That’s a positive if you have an established business and a credit score over 600, but your yearly earnings are less than $50,000.
Who should look elsewhere: If you meet Funding Circle’s other criteria but your credit score is less than 700, a SmartBiz will likely offer you a lower interest rate.
SmartBiz is a technology platform that helps connect borrowers with one of three partner loan lenders. SBA loans are actually underwritten by a traditional lender, but are partially guaranteed by the federal government – so they typically come with significantly lower interest rates (as low as 6.25% through SmartBiz). However, they can be time-consuming to apply for, since the borrowing requirements are fairly strict.
SmartBiz accelerates things by taking the application and funding process completely online. Eligible businesses can borrow up to $350,000 with a 10-year repayment term, and the rates are comparable to what you might pay with a bank. There’s a 4% origination fee, but this is similar to most lender’s fees you’d find elsewhere.
Who it’s good for: Business owners that need more than five years to repay what they borrow and have a credit score higher than 600.
Who should look elsewhere: Businesses that need to borrow more than $350,000, and/or have credit scores under 600.
Best for Businesses With Credit Scores Under 600
A loan from Kabbage is a good choice if you have less than established credit and you need to borrow less than $250,000. While Kabbage does work with those with less than established credit, what sets them apart is that they use other performance indicators (like your business’s sales and shipping data) as opposed to just your credit score when evaluating your business for a loan. Traditional banks don’t do this.
That said, if you have bad credit (especially due to poor money management or not paying your bills on time) you may not be approved. But for the right business, Kabbage will be a good fit – although you will pay up to 10% of your loan amount in monthly fees.
Who it’s good for: Business owners who need a modest amount of capital quickly, and who don’t have an established credit score.
Who should look elsewhere: More established businesses with credit scores over 600, or those who need to borrow more than $250,000.
If your credit score is 500 or higher, you may be able to borrow up to $500,000 with OnDeck. Loan terms range from three to 36 months, so you’ve got more time to repay what you borrow when compared to a 12-month loan through Kabbage.
Who it’s good for: Businesses with less than established credit that need to take out a larger loan amount than what the other online lenders on this list can offer.
Small Business Loan Alternatives
Unlike a loan, which delivers a lump sum of cash all at once, business lines of credit and business credit cards allow you to draw on your available credit as needed. If you need the flexibility of being able to tap capital without having to take out a new loan, that’s a good reason to consider a business line of credit or a business credit card.
Either of these options are going to be a smart choice if you only need to borrow a smaller amount of money. The interest rates on each are generally going to be higher than what you’d get with a term loan from an online lender or a traditional loan from a bank, however. They may also come with a variable rate, meaning your interest rate can go up or down over time.
Raising Your Credit Score
Improving your credit can boost your odds of getting the best loan rates. Here are the most important things you can do to help your score:
First, always pay your bills on time and aim to utilize 30% or less of your total credit line. Second, keep old accounts open, even if you’re not using them and limit how often you apply for new credit. And, lastly, use a mix of different credit types.
While your score won’t change overnight, applying these financial techniques will increase your eligibility for better loan rates in the future.
The Bottom Line
The best small business loan rate for you is going to be the one that you’re able to get approved for. If you have excellent credit and a long-standing business history, apply through your local bank or credit union first. They will be able to offer you the best rate. If you need the money quickly, or if you can’t get approved for a loan through a bank, try applying through multiple platform lenders to see where you can qualify, and then compare their offers to find the best deal.