Low-Interest Business Loans

How To Get a Low-Interest Business Loan

Small business owners must constantly adapt and grow to meet their financial goals. To do so, they often need access to capital for various purposes, such as expanding operations, purchasing equipment, hiring staff, or managing cash flow. Low-interest loans from Clarify can help you achieve your goals without the burden of high-interest rate debt.

A business loan with low APRs (annual percentage rates) can significantly reduce the overall cost of borrowing, allowing you to utilize more of the funds. By understanding the nuances of securing the best financing options, business owners can set themselves up for success and ensure long-term financial health.

Our loan advisors help you secure the competitive rates with a simple loan application. The only requirement is that your annual revenue is over $120K and you have a business bank account. Regardless of your credit score, you can be eligible for a low rate business loan from Clarify.

Low-Interest Business Loans vs. Other Financing Options

Low-interest business loans can offer several advantages over other financing options, such as business credit cards or personal loans. Some benefits of low-interest loans include:

Lower Costs

Low-interest loans have lower overall borrowing costs, allowing businesses to allocate more resources to growth and operations.

Flexible Repayment Terms

Fixed interest rates and repayment terms make budgeting and cash flow management more predictable.

Flexibility

Many low-interest business loans can be used for a variety of purposes, allowing businesses to address different needs with a single working capital solution.

Get a Low-Interest Business Loan

Best Small Business Loans With Low Interest Rates

Here are the best types of small business loan options available to help you make the best decision for your specific business needs.

Short-Term Loans

Short-term loans are a popular financing option for businesses looking to cover temporary cash flow gaps, fund emergency expenses, or take advantage of a time-sensitive opportunity. These loans typically have repayment terms of 3 to 18 months and can provide quick access to capital. You must have a business checking account to get approved.

Pros:

• Fast approval and funding
• Less stringent credit requirements compared to long-term loans
• Easier to manage due to shorter repayment terms
• Low personal credit scores can get approved
• No prepayment penalties
• Good option for refinancing existing debt
• Underwriting process is very short and simple
• Loan amounts up to $5M are eligible

Cons:

• May have higher interest rates compared to long-term loans
• Frequent repayment schedule (weekly or even daily), some lenders have monthly payments
• May not be suitable for long-term investments
• Higher interest rates than traditional banks
• Startups with less than 3 months of operating history have a problem with eligibility for term loan programs.

Apply for Short-Term Loan

Business Line of Credit

A business line of credit is a flexible financing option that allows businesses to draw funds up to a preset limit, paying interest only on the borrowed amount. It's a revolving credit facility, which means that as you repay the borrowed amount, your credit limit is replenished, allowing for continuous access to funds.

Pros:

• Highly flexible, allowing businesses to borrow and repay as needed
• Interest is charged only on the borrowed amount, not the entire credit line
• Can be used for a wide range of purposes

Cons:

• Requires strong credit and financial history for approval
• May have higher interest rates compared to term loans
• Risk of overextending credit and negatively affecting credit score

Apply for Line of Credit

Equipment Financing

Equipment financing is a type of loan specifically designed for purchasing or leasing equipment necessary for business operations. It uses the purchased equipment as collateral, which can help secure lower interest rates.

Pros:

• Tailored to the specific needs of equipment acquisition
• Lower loan rates due to collateral
• Potential tax benefits from depreciation or Section 179 deductions
• SMBs with bad credit scores are eligible for equipment loans

Cons:

• Limited to equipment purchases or leases
• Risk of equipment becoming obsolete before the loan is fully repaid
• May require a down payment

Apply for Equipment Financing

Invoice Factoring

Invoice factoring is a financing option where businesses sell their outstanding invoices to a factoring company in exchange for a percentage of the invoice value upfront. This provides immediate cash flow and can help alleviate cash constraints caused by slow-paying customers.

Pros:

• Immediate access to cash based on outstanding invoices
• No collateral required
• Can help improve cash flow management
• Your creditworthiness is not an important factor for approval

Cons:

• Fees can be higher than traditional loans
• Loss of control over invoice collection
• May create a negative perception among clients if they are aware of the factoring arrangement

Apply for Invoice Factoring

SBA Loan

SBA (U.S. Small Business Administration) loans are gov-backed loans that offer low interest rates and long repayment terms. They are designed to help small businesses obtain financing when they might not qualify for traditional loans. SBA lenders are often traditional banks, financial institutions, and credit unions.

Pros:

• Low interest rates due to government guarantee
• Long repayment terms, up to 25 years for real estate loans
• Can be used for various business purposes
• No origination fee
• Has specific program for disaster loans, microloans, and non-profits.
• Good option for commercial real estate loans

Cons:

• Lengthy and complex application process
• Strict eligibility requirements
• Collateral may be required
• Credit score requirements are too high for many business owners
• Have to deal with traditional financial institutions
• Some online lenders can require having a business plan for SBA bank loans

Apply for SBA Loan

Merchant Cash Advance

A merchant cash advance (MCA) is a financing option that provides businesses with a lump sum of cash in exchange for a percentage of future credit card sales. The repayment is typically made through daily or weekly deductions from credit card transactions.

Pros:

• Fast access to cash
• No collateral required
• Repayment is based on sales, making it more manageable during slow periods

Cons:

• Can have high fees and interest rates
• May negatively impact cash flow due to daily or weekly deductions
• Not suitable for businesses with low or inconsistent credit card sales

Apply for Merchant Cash Advance

Key Factors to Consider When Choosing a Small Business Lender

When evaluating different business loan options, it's important to consider several factors to ensure you're making the best choice for your business needs. Key factors to consider include:

• Interest Rate: The interest rate is a crucial factor in determining the overall cost of borrowing. Lower interest rates result in lower costs, making low-interest business loans a more attractive option.

• Loan Term: The length of the loan will impact both the total cost of the loan and the size of the monthly payments. Longer loan terms generally result in lower monthly payments but higher overall interest costs.

• Repayment Structure: Understanding the repayment terms of a loan, such as frequency and flexibility, is essential. Some loans may have more frequent repayment schedules or may require a balloon payment at the end of the term.

• Collateral Requirements: Some loans require collateral, which can impact both the approval process and the interest rate offered. Assessing the value and risk associated with using collateral is important when considering a loan.

• Eligibility Requirements: Lenders have different eligibility requirements based on factors like credit score, time in business, and annual revenue. Be sure to review these requirements to determine if a loan is suitable for your business.

Factors That Affect Interest Rates

Understanding the factors that influence APRs is essential when getting a small business loan. Key factors include:

Credit Score

A strong credit score demonstrates a borrower's creditworthiness, which can result in lower interest rates. Lenders often use the FICO score, ranging from 300 to 850, with scores above 680 considered favorable for securing lower rates.

Loan Term

Shorter loan terms often have higher interest rates because the lender has less time to earn interest on the loan. Conversely, longer loan terms typically offer lower interest rates but result in higher overall interest costs.

Collateral

Loans secured by collateral, such as equipment or real estate, may have lower interest rates due to reduced risk for the lender.

Economic Conditions

Broader economic factors, such as inflation, market demand for loans, and the central bank's monetary policy, can also influence interest rates.

Fixed vs. Variable Interest Rates

Business loans can have fixed or variable interest rates. Fixed interest rates remain constant throughout the loan term, providing predictability and stability in repayment amounts. Variable interest rates, on the other hand, can change based on market conditions, which may result in fluctuating repayment amounts.

Fixed Interest Rates:

Pros: Predictable payments, easier budgeting, protection from rising interest rates

Cons: May start higher than variable rates, limited benefit if interest rates decrease

Variable Interest Rates:

Pros: May start lower than fixed rates, potential savings if interest rates decrease

Cons: Unpredictable payments, potential for increased costs if interest rates rise

Understanding APR (Annual Percentage Rate)

The Annual Percentage Rate (APR) is a more comprehensive measure of the cost of borrowing, as it includes not only the interest rate but also any fees and other charges associated with the loan. A lower APR indicates a more affordable loan, making it an essential factor to consider when comparing loan offers.

Maximize The Benefits of Low-Interest Business Financing

By using best practices in cash flow management, cost reduction, and lender relationship-building, businesses can maximize the benefits of low loan rates to fuel growth. Here are some things to keep in mind:

Grow Your Business

Low-interest loans can help your business grow. To make the most of them, try these ideas:

• Put money into projects that make more money, like marketing, creating new products, or expanding your business space.
• Make your business more efficient by upgrading technology or equipment.
• Replace high-interest debt with low-interest loans to save money and have more cash available for your business.

Improve Cash Flow Management

Managing your cash flow is important when using low-interest loans. Here are some tips:

• Make a budget to track your income and expenses, and plan for loan payments.
• Keep some cash saved for emergencies or slow times.
• Make sure your customers pay you on time, and consider using invoice factoring if needed.

Minimize Loan Costs

To save even more money with low-interest loans, try these strategies:

• Pay extra or early on your loan if allowed, to reduce the total amount you owe and pay less interest.
• Talk to your lender about getting better loan terms, like lower interest rates or no fees.
• Keep an eye on your credit and work to improve your credit score to get better loan terms in the future.

Build a Good Relationship with Your Lender

Having a good relationship with your lender can lead to benefits like better access to credit and helpful financial advice. To build a strong connection:

• Keep your lender updated on your business's progress and any challenges you face.
• Show them you're responsible by making payments on time and keeping good financial records.

FAQs about Low Interest Business Loans

Whether you're looking to get a new loan or refinance existing debt, understanding the basics is important. Here are frequently asked questions from business owners who choose Clarify Capital: