Business loan interest rates are the price a lender charges to put capital in your hands, but that price shows up in several different formats — an interest rate, an annual percentage rate (APR), or a factor rate — and each one describes cost differently. A bank term loan might be quoted at a single-digit interest rate, an online lender at an APR in the teens or higher, and a merchant cash advance at a factor rate like 1.25 that isn't an interest rate at all. The only way to compare offers fairly is to convert every one of them into total dollars repaid and, where possible, an APR. The rate you personally receive depends on your credit, time in business, revenue, the product type, the term, and whether the financing is secured. This guide breaks down each pricing model in plain terms so you can read any offer accurately and choose the lowest true cost for your situation.
Key takeaways
- Business financing is priced three ways — interest rate, APR, and factor rate — and only total dollars repaid lets you compare them fairly.
- A factor rate (e.g., 1.30) is a fixed multiplier, not an interest rate; repaying early does not reduce the cost.
- APR bundles most fees into one number, so it's the fairest single figure for comparing loans with different fee structures.
- Your rate is driven by credit, time in business, revenue, term, collateral, and industry — cost generally rises with speed and accessibility.
- Typical example ranges run from ~10%–15% for SBA loans up to factor rates of 1.10–1.50 for merchant cash advances.
- Common funding parameters include a $10,000 product minimum, applicants considered from FICO 500+, and approvals in 24–48 hours.
- MCA reverse consolidation lowers the daily or weekly payment to ease cash flow; it does not pay off or eliminate existing advances.
The Three Ways Business Financing Is Priced
Before comparing offers, you have to recognize which pricing language a lender is using. Most business financing falls into one of three formats:
- Interest rate — a percentage charged on the outstanding balance over time, quoted annually. Because it's charged on the declining balance as you pay down principal, the actual dollars of interest fall over the life of the loan. This is how banks and SBA lenders typically quote term loans and lines of credit.
- APR (annual percentage rate) — the interest rate plus most fees, expressed as a single yearly percentage. APR exists precisely so borrowers can compare products with different fee structures on one number. A loan with a low rate but heavy origination fees can carry a higher APR than a loan with a higher rate and no fees.
- Factor rate — a decimal multiplier (commonly 1.10 to 1.50) used for merchant cash advances and some short-term products. You multiply the amount funded by the factor rate to get total repayment. A factor rate is fixed at signing: the cost does not shrink if you repay early, because it was never calculated on a declining balance.
The critical takeaway: an interest rate and a factor rate are not interchangeable. A factor rate of 1.30 on a short term can translate into an APR well above what the number "1.30" suggests, because the money is repaid quickly. Always convert to total dollars and, when you can, to APR.
Typical Rate Ranges by Product
Rates vary widely by product, lender, and borrower profile. The figures below are illustrative example ranges to show relative cost — not quotes, and not guarantees. Your actual offer depends on your file.
| Product | Typical pricing format | Illustrative range | Common term |
|---|---|---|---|
| SBA loan (e.g., 7(a)) | Interest rate | ~10%–15% | 5–25 years |
| Bank term loan | Interest rate | ~7%–20% | 1–5 years |
| Online term loan | APR | ~15%–50%+ | 6 months–5 years |
| Business line of credit | APR / interest rate | ~12%–45% | Revolving |
| Equipment financing | Interest rate | ~8%–30% | 2–7 years |
| Invoice factoring | Factor/discount fee | ~1%–5% per invoice | Until invoice paid |
| Merchant cash advance | Factor rate | ~1.10–1.50 | 3–18 months |
As a general pattern, cost rises as speed and accessibility rise. The lowest-cost products (SBA, bank loans) demand strong credit, established history, and longer approval timelines. The fastest, most accessible products (short-term loans, merchant cash advances) carry the highest cost because they take on more risk and fund quickly. Products with a $10,000 minimum and approvals in 24–48 hours generally sit toward the faster, higher-cost end of this spectrum, with borrowers considered from a FICO of 500 and up.
What Actually Drives Your Rate
Two businesses can apply for the same product and receive very different offers. Lenders price to risk, and these are the main inputs:
- Personal and business credit — higher scores signal lower default risk and pull rates down. Many alternative lenders consider applicants with a FICO of 500+, but stronger credit consistently earns better pricing.
- Time in business — more operating history means more proof you can repay. Businesses under two years old are considered higher risk and priced accordingly.
- Revenue and cash flow — consistent, healthy deposits reassure lenders and can offset a weaker credit score, especially for revenue-based products.
- Loan amount and term — longer terms lower the periodic payment but usually raise total interest paid; shorter terms do the reverse.
- Collateral — secured financing (equipment, real estate, receivables) typically prices lower than unsecured, because the lender has an asset to recover.
- Industry — some sectors are viewed as higher-risk (seasonal, cash-intensive, or volatile), which can affect both approval and rate.
- Broader rate environment — many business rates move with benchmark interest rates, so market conditions set the floor everyone prices from.
You control several of these. Cleaning up credit, keeping steady deposits, and offering collateral where appropriate are the most direct levers for a better rate.
How to Compare Offers on True Cost
The number a lender leads with is rarely the full story. To compare offers honestly, reduce each one to total dollars repaid, then look at APR and payment cadence.
Consider two example offers on $50,000, using round numbers for illustration only:
| Detail | Offer A: Term loan | Offer B: Merchant cash advance |
|---|---|---|
| Amount funded | $50,000 | $50,000 |
| Pricing | 24% APR | 1.30 factor rate |
| Term | 18 months | ~10 months |
| Total repaid | ~$59,300 | $65,000 |
| Total cost of capital | ~$9,300 | $15,000 |
| Payment cadence | Monthly (~$3,295) | Daily/weekly (% of sales) |
| Cost if repaid early | Falls (interest on balance) | Fixed (no savings) |
Offer B funds a smaller total-cost illusion until you total the dollars: it costs more even though it's repaid faster, and early repayment saves nothing because the factor rate is fixed. Offer A costs less overall and rewards early payoff, but the monthly payment is larger. The right choice depends on your cash-flow rhythm — but you can only see the tradeoff after converting both to total dollars. When comparing, always ask: total repayment, APR, payment frequency, whether the cost drops for early payoff, and every fee (origination, servicing, prepayment, late).
Fees That Change the Real Rate
Fees can quietly raise your true cost well above the headline rate. That's exactly why APR exists — it folds most fees into one comparable number. Watch for:
- Origination fee — a percentage of the loan (often 1%–5%) charged up front or deducted from proceeds. If it's deducted, you receive less than the face amount but repay the full amount, which raises effective cost.
- Prepayment penalty — a charge for paying off early. Some products have none; others make early payoff uneconomical. This matters most when you expect to repay ahead of schedule.
- Servicing or maintenance fees — recurring monthly or annual charges, common on lines of credit.
- Draw fees — charged each time you pull from a line of credit.
- Late fees and NSF fees — triggered by missed or bounced payments.
When a lender quotes a low rate but won't state the APR, ask for it directly, or compute total dollars including every fee. A 15% rate with a 5% origination fee on a short term can carry a materially higher APR than the rate implies.
Lowering an Existing Advance Payment to Ease Cash Flow
If your business already carries one or more merchant cash advances and the combined daily or weekly debits are straining cash flow, a reverse consolidation can restructure those payments into a single, lower periodic payment. The purpose is to reduce the amount leaving your account each day or week so operating cash is freed up — not to eliminate the underlying advances. The existing advances remain in place; what changes is the payment pressure on your account.
This is a cash-flow tool, not a cost-reduction guarantee. Stretching payments over a longer horizon typically lowers each debit but can increase total dollars paid over time, so weigh the relief against the added cost. It's most useful when high-frequency debits are threatening your ability to make payroll, cover inventory, or keep operations running — situations where easing the daily burden is worth more than the incremental cost.
Frequently asked questions
What is a good interest rate for a business loan?
It depends entirely on the product and your profile. As illustrative examples, an SBA or bank loan in the roughly 7%–15% range is strong, while online term loans and lines of credit commonly run higher. Rather than chasing a single "good" number, compare the total dollars repaid and the APR across your actual offers — a lower rate with heavy fees can cost more than a higher rate with none.
What's the difference between an interest rate and a factor rate?
An interest rate is charged on your declining balance over time, so the dollars of interest shrink as you pay down principal, and early payoff saves money. A factor rate is a fixed multiplier applied to the amount funded at signing — you multiply the funded amount by the factor (e.g., $50,000 x 1.30 = $65,000 total). Because it's fixed, repaying a factor-rate product early does not reduce the cost.
How is APR different from the interest rate?
The interest rate is only the cost of borrowing the principal. APR adds most fees — such as origination charges — into a single annualized percentage. APR is generally the better comparison tool because two loans with identical interest rates can have very different APRs once fees are included.
Can I get a business loan with a low credit score?
Yes, financing is available to applicants with a FICO of 500 and up, though lower scores typically mean higher rates and shorter terms because lenders price to risk. Strong revenue and consistent cash flow can help offset a weaker score, especially for revenue-based products. Improving credit before applying is the most direct way to earn better pricing.
What is MCA reverse consolidation and does it pay off my advances?
No — reverse consolidation does not pay off or buy out your advances. It restructures your existing merchant cash advance payments into a single, lower daily or weekly debit to ease cash flow, so less money leaves your account each period. The underlying advances remain in place; the goal is to relieve payment pressure, not to eliminate the debt. Because payments may stretch over a longer horizon, total dollars paid can increase, so weigh the cash-flow relief against the added cost.
How fast can I get funded and what's the minimum amount?
For faster, alternative financing products, approvals commonly come within 24–48 hours, with a typical product minimum of $10,000. Bank and SBA loans usually offer lower rates but take considerably longer to approve and fund. As a rule, faster and more accessible financing carries a higher cost of capital.
