Business Loan Interest Rate

By: EconomyWatch Content   Date: 30 December 2009

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Business loan interest rates are something that you, as a business owner, need to be concerned about the most. To repay a business loan, you need to pay interest, along with the principal amount. The rates of interest vary depending on the type of loan, duration of the loan and the tax implications. For instance, the rate will be higher for an unsecured business loan and lower for a secured business loan. Depending on the risk factors, the rates vary. The longer you take to pay back the loan, the higher the interest rate tends to be. Business loans from the government have certain tax incentives, thus entail lower interest rates.

Business Loan Interest Rate: Factors that influence the rate 

Federal Reserve Discount Interest Rate: Banks and other lending institutions borrow capital from the Fed. The discount rate is the rate of interest that the Fed charges the institutions to borrow funds on a short term basis. The discount rate is directly connected to the Prime Rate, which is the rate of interest on short term loans that the banks charge their customers with high credit ratings.

 

Your Credit Score: If you approach a lender for a business loan, it checks your credit worthiness from the Consumer Reporting Agencies (CRAs). The score determines whether you are capable of paying your dues on time. You can protect your score by paying your bills on time and keeping your expenses at a minimum.

 

Lender Factors: Banks and lending institutions balance their profit margin with various market factors, such as inflation, state of the economy, etc. If they charge too little interest, they risk going out of business. On the other hand, if they charge a lot, they risk losing out on potential customers. So, shop around, compare various quotes and choose the best deal possible.

Business Loan Interest Rate: How to get low interest business loans

Low interest business loans ensure you can manage your payments better. Follow these steps to land a low interest loan:

·        Have a good credit score, ideally more than 650.

·        Check out various loan options through the Small Business Administration (SBA). The SBA guarantees your loan and offers various grant options.

·        Prepare a good business plan and have realistic cash flow and P&L projections.

·        Check out various social lending sites to get a good deal on the rates.


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