Guide to business loan interest rates

Guide to business loan interest rates image

Many factors affect the interest rate you can secure when applying for a business loan. These factors can include the type of loan you apply for, your credit score, the competitiveness of the market, and more.

Unsurprisingly, everyone wants to find the best interest rates for their business loan. So, what should you look out for and where can you find these great deals? We answer these questions and more below.

What are business loan interest rates?

Business loan interest rates are fees you pay alongside the loan amount. Interest rates are a percentage of the amount you borrow. This is how lenders make money on their investments.

When applying for a business loan, you can roughly expect to pay interest rates between 6% and 15%. But they can be higher.

Let's look at an interest rate example for a business loan:

You apply for a £10,000 business loan with a pre-agreed interest rate of 7%; in this instance, the total amount repayable to the lender will be £10,383, with £383 of this total being the interest paid. If you were to repay this loan over twelve months, you can expect to repay fixed monthly instalments of £865.27.

Remember: If you’re applying for a large business loan, the lender might require you to sign a debenture.

What's representative APR on business loans?

When you're comparing loans, you might notice they offer a percentage APR (annual percentage rate). This isn't necessarily the rate you will receive when you apply.

This is an advertised rate, which means 51% of approved applicants receive this APR, but the other 49% can expect higher rates. That's why it's important to understand the specific rates that apply to you and your loan before signing.

The differences between fixed and variable interest rates

Fixed interest rates

A fixed interest rate is where you pre-agree to an interest rate for the term of your loan repayments. This means the interest rate will remain the same even if the base interest rate set by the Bank of England increases or decreases.

Signing up for a fixed rate means you can budget for the coming months, as you'll know exactly what you'll be paying for the loan term.

Variable interest rate

This interest rate can fluctuate depending on market conditions, so applying for a loan with a variable interest rate can be a bit of a gamble. That gamble could pay off, meaning you pay less than if you were tied into a fixed interest rate. But if the market crashes and the interest rate increases, you'll end up paying back more money to the lender.

A variable interest rate can make it challenging to budget, though.

How much are business loan interest rates

How much are business loan interest rates?

Interest rates are largely in line with competitors and market conditions, which are set out by the Bank of England. The current rate set by them is 5.25%, the highest it’s been for 16 years.

Other factors that can affect the interest rate you're offered include your credit score, business turnover, how much you want to borrow, the repayment period you're after and your trading history.

Make sure you budget for the full loan amount, plus interest

Business funding can drastically change the course of your business for the better. You can invest in new markets, stock up on inventory or plug cash flow gaps. But getting into debt isn't something you should take lightly. Always check you can comfortably afford loan repayments with interest.

Get better interest rates for your business loan

  • Compare lenders on the market by using our free loan comparison tool. Compare total repayable, interest rates and more in seconds with our self-serve platform.
  • If there are no additional fees, consider repaying the loan faster. This means you'll repay less interest in total.
  • Make small changes to improve your credit score. Improving your score means you'll have more loans to choose from. Read our blog here to learn more about improving your business credit score.
  • Consider applying for a secured business loan. With this type of loan, you must offer up a high-value asset as security. They can offer you more competitive interest rates because you pose less risk to the lender.
  • Some lenders might require you to sign a personal guarantee; this helps lessen your risk as a borrower and could mean more competitive interest rates.

Start comparing large or small business loan interest rates today and get your FREE quote.

About the author

Helen Jackson Author
Written by Helen Jackson | May 13, 2024

Money Writer

Helen has over nine years of experience in content writing and writes financial content for us here at Capalona.

Updated: May 13, 2024
Published: May 13, 2024

Share this guide?

Related articles