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I've spent more than 15 years pricing out financing with small and midsize business owners, and the interest rate is usually the first thing they ask about.
The truth is that the rate largely depends on the type of financing you are exploring. There are several different types of financing available through Clarify Capital. These include short-term loans, business lines of credit, equipment financing, Small Business Administration (SBA) loans, merchant cash advances, and invoice factoring. Each option has a unique benefit, and what fits comes down to your company's needs and qualifications.
Below, I'll go over how your rate is determined, the annual percentage rates (APRs) for each financing option, and what you need to qualify.
| Financing type | Rate | Borrow up to | Financing timeline | Repayment term |
|---|---|---|---|---|
| Short-term business loan | Starting at 6% APR | $5M | As fast as same day | 6 to 36 months |
| Business line of credit | Starting at 6% APR | $5M | As fast as same day | Revolving, 6 to 36 months |
| Equipment financing | Starting at 6% APR | 100% of equipment value | 1 to 5 days | 12 to 72 months |
| SBA loan | Starting at 6.75% APR | $5M | As fast as two weeks | 10 to 25 years |
| Home equity line of credit | As low as prime, variable | $750,000 | As fast as one week | Up to 30 years |
| Merchant cash advance | Factor rate 1.08 to 1.45 | $5M | As fast as same day | Based on your sales |
| Invoice factoring | 0.5% to 5% per invoice per month | 100% of invoice value | 1 to 2 weeks | 30 to 90 days |
Each financing option listed above varies by both cost and availability. When you're weighing a particular financing option, it's worth looking at multiple factors such as your desired loan amount, estimated monthly payment, and overall time commitment before you decide.
Most SBA financing runs through the SBA 7(a) loans program, which the U.S. Small Business Administration guarantees in part. That makes it government-backed financing. The SBA also runs a separate Microloans program for smaller amounts through nonprofit lenders. The two work differently, so don't treat them as one thing.
Minimum Qualifications
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
Home Equity Lines of Credit (HELOC)
A HELOC isn't a business loan. It's a line of credit you take against your home and then put into your business. That's why it qualifies on you personally, on your income, credit, and home equity, instead of on your business's revenue or time in business.
Because your home secures the line, the rates are often low. Clarify Capital's HELOC starts as low as prime, and prime is 6.75% right now. The rate is variable, so it moves with prime, and your payment can change from month to month.
You can access up to $750,000, with a draw period of up to five years and repayment terms up to 30 years. You'll need a 620 credit score and enough equity in your home.
The trade-off with this financing option is that your home is the collateral. If you can't pay the line back, you could lose it.
Understanding Factor Rates
Not every financing option uses an APR to determine the interest that you'll pay. Specifically, both merchant cash advances and invoice factoring use alternative pricing structures. A merchant cash advance uses a factor rate, and invoice factoring uses a percentage charged per month on invoices sold to the factoring company.
Factor rates run from 1.08 to 1.45. Take $50,000 at a 1.2 factor rate, and you repay $60,000. Invoice financing is the close cousin of factoring. You borrow against the invoice and keep collecting from your customer yourself.
Fixed Rates vs. Variable Rates
I often get asked about the difference between fixed and variable interest rates.
Fixed interest rates don't move. A fixed-rate loan locks your rate on day one, and the payment stays the same until you've paid it off. You know the full cost before you sign.
Variable interest rates move with a benchmark, and that benchmark is usually the prime rate. Variable-rate loans often start lower. The catch is that your payment can climb if the benchmark climbs. A HELOC works this way.
What Else You Pay Besides Interest
Your rate isn't the whole cost. Here are the fees to ask about before you sign anything.
Origination fee
A one-time charge for setting up the loan, usually taken out of the amount you receive. Clarify sometimes charges one.
Closing costs
Common on SBA loans and on anything secured by property. These cover appraisals, filing, and paperwork.
Annual fees
Some lines of credit charge a yearly fee to keep the line open, whether you draw on it or not.
Prepayment penalties
A charge for paying the loan off early. Not every lender has one, so it's worth asking.
Late payment fee
What you get charged when a payment misses its due date.
What Changes Your Rate
The major factors that influence the interest rate offered on a loan include:
Credit score
Higher scores get lower rates, and lenders look at your personal score and your business credit score.
Time in business
More history means less risk to the lender.
Annual revenue
Steady revenue shows you can carry the payments.
Length of term
Long terms lower the payment and raise the total interest.
Collateral
Backing the loan with an asset brings the rate down.
Loan type
An SBA loan and a merchant cash advance sit in completely different price ranges.
How Credit Scores Affect What You Qualify For
Although credit scores aren't always the most important factor in small business loan applications, they often play a significant role in determining the interest rates and loan terms. A stronger credit score is likely to result in improved loan terms.
In general, borrowers with higher credit scores receive better terms on their loans than those with lower credit scores. Remember, these requirements vary depending on your individual situation.
| Credit score | What you may qualify for | Minimum time in business |
|---|---|---|
| 500 to 549 | Merchant cash advance | 6 months |
| 550 to 599 | Short-term loans and equipment financing | 6 months |
| 600 to 619 | Business line of credit | 1 year |
| 620 to 639 | Home equity line of credit | Not required |
| 640 and up | SBA loans | 2 years |
What Your Monthly Payment Looks Like
Typically, monthly payments on a small business loan depend on the principal amount borrowed as well as the interest rate. Below, I've done some sample calculations so you can see the math in plain terms.
| Loan amount | Loan type | Rate and term | Monthly payment | Total interest |
|---|---|---|---|---|
| $50,000 | Short-term loan | 6% APR, 24 months | $2,216 | $3,185 |
| $50,000 | Equipment financing | 6% APR, 60 months | $967 | $7,998 |
| $100,000 | Short-term loan | 6% APR, 36 months | $3,042 | $9,519 |
| $100,000 | SBA loan | 6.75% APR, 10 years | $1,148 | $37,789 |
| $1,000,000 | SBA loan | 6.75% APR, 10 years | $11,482 | $377,889 |
Compare Rates Today
When you're ready to find out how much your small business qualifies for, apply today.
Clarify Capital's online application takes just two minutes. Checking your options won't affect your credit score.
Frequently Asked Questions on Business Loan Interest Rates
Here are some of the most common questions that I hear from clients about business loan interest rates.
How Much Is the Monthly Payment on a $50,000 Business Loan?
It depends on your interest rate and your term. At 6% APR over 24 months, you'll pay about $2,216 a month. Extending that same loan to 60 months, you'll pay about $967 a month, but you'll pay about $4,800 more in interest over the life of the loan.
What Is a Reasonable Interest Rate for a Business Loan?
This depends on what type of loan you're looking to take out. Traditional bank financing, credit unions, and SBA loans tend to have the lowest interest rates available. Clarify Capital's rates start at 6% APR on short-term loans and lines of credit, and 6.75% on SBA loans. Online lenders and revenue-based financing like merchant cash advances tend to cost more because the lender takes on much more risk and finances much quicker.
How Hard Is It To Get a $100,000 Business Loan?
Easier than most owners think, as long as your revenue supports it. A $100,000 term loan requires $10,000 in average monthly revenue and at least six months in business. The credit score requirement is at least 550. Banks and SBA loans at this level require more, meaning at least two years in business, a minimum credit score of 640, and financial statements.
What Is the Payment on a $1,000,000 Business Loan?
At 6.75% APR over 10 years, you'll pay $11,482 a month. At 6.75% APR over 25 years, you'll pay $6,909 a month. You'd pay over $1 million in interest over the life of that loan.
Does Checking My Rate Hurt My Credit Score?
No. Checking your options will not affect your credit score. Clarify Capital performs soft inquiries to match you with lenders. Only after you've spoken with a lender about possible loan options does a hard inquiry happen.
Is My Personal Information Safe When I Apply?
Yes. Clarify follows SOC 2 security principles for handling and processing your sensitive data.
Michael Baynes
Co-founder, Clarify
Michael has over 15 years of experience in the business finance industry working directly with entrepreneurs. He co-founded Clarify Capital with the mission to cut through the noise in the finance industry by providing fast funding and clear answers. He holds dual degrees in Accounting and Finance from the Kelley School of Business at Indiana University. More about the Clarify team →
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