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How to choose a commercial loan: compare interest rates

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If you are looking for and comparing different commercial loans, interest rates are one of the most important factors to consider. It’s hard to know what interest rate is favorable if you don’t have other references to compare.

The average interest rate on commercial loans is no longer what it was ten years ago, when banks were less strict and approved most applications. Nowadays traditional lenders have more stringent requirements, and companies often seek financing from other sources.

It is vital to know the interest rates you can expect when applying for a commercial loan

Here we inform you of the average rates in commercial loans, organized according to type of loan and type of lender. At Ferdies Financial, our goal is to help you make the best decision once you understand how interest rates work on a commercial loan and what rate best suits your needs.

Commercial loan interest rates according to the type of loan

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The first way to break down interest rates on commercial loans is to organize them according to the type of loan.

These are the equivalent annual rates (APR) (also called APR or Annual Percentage Rate ) depending on the types of commercial financing available:

  • Traditional bank loans: 4% to 13% APR
  • SBA loans: 7.5% to 10%
  • Medium term loans: 7% to 30% APR
  • Equipment financing: 8% to 30% APR
  • Credit lines: 7% to 36% APR.
  • Factoring: 13% to 60% APR
  • Short-term loans: 8.5% to 80% APR
  • Cash advances from the merchant: 40% to 150% APR

You will wonder why there is such a difference in the range of interest rates. This is the reason:

Lenders with the lowest rates often require a solid credit score, guarantees, and that your business has been running for several years. While SBA loans (government loans) have the most favorable interest rates, these loans are also the most difficult to obtain. The application process can take several weeks, and applicants must submit abundant documentation to prove they are solvent.

Bank loans have a rigorous qualification process, similar to SBA loans, but the advantage is that they offer longer financing terms compared to commercial credit lines, online loans or cash advances.

The higher range of interest rates offers some benefits, such as much faster financing and access to cards, advantages that traditional loans do not normally offer. In addition, the requirements for applying for short and medium term loans are less strict: even companies with bad credit can receive financing.

Commercial loan interest rates according to the type of lender

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The interest rates on commercial loans also vary according to the type of lender. Below we show you the average interest rates according to different types of banks and lenders:

  • Large national banks: 2.55% -10.00%
  • Small national and regional banks: 2.48% -13.00%
  • Online and alternative lenders : 13.00% -71.00%

When you compare the rates of the main national banks with those of the online lenders, you will see a big difference. Higher interest rates are associated with a shorter loan repayment period. In addition, online commercial loans are much easier to obtain. The requirements (such as how long the company has been running, annual income and credit score) are much less strict.

In short, before making a final decision, it is important that you understand the interest rates of each lender or each type of loan, and that you assess whether the interest rates offered to you are fair. You can determine if your interest rate is fair when it allows you to generate a positive return on your investment.

How is the interest rate of a commercial loan determined?

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The average rates we have provided are illustrative only, since the final rate you receive will be determined by your lender, who will consider different factors. Your credit score is not the only factor you will consider, as many lenders analyze your complete business profile.

These are the factors that lenders consider when evaluating your commercial loan application:

  • Your personal credit score. Learn here how the credit score and interest rate are related. And if you need to increase your personal credit score quickly, find ways to achieve it here.
  • Your commercial credit score. Learn here how to build your business credit quickly.
  • The value of any guarantee you can provide
  • The outstanding balance on other loans you have, or any debt you are currently paying. Here are some strategies that can help you pay off your debt quickly.
  • The total loan amount you have requested
  • The purpose you have for the loan
  • Your financial statements
  • The duration of the loan
  • The cash flows of your business

As you can see, lenders examine a variety of factors and requirements when determining your interest rate. You can see here a complete list of all the requirements to obtain a commercial loan.

When analyzing all these factors simultaneously, it is possible that, for example, you have a solid credit score, but still do not qualify for a traditional loan because your business has been running for less than 2 years. This is where online and alternative loans can be a viable option.

And always remember: if you are not happy with the interest rate they offer, there are always ways to reduce it.

Do you pay high interest on your commercial loan? Learn here how to reduce them


Use this tool to calculate your payments

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Interest rates can be scary. But when you buy a commercial loan, interest rates are only part of the whole picture that you should consider. The amount of money you are borrowing, the time it will take to return it and any other associated fees, such as origination and processing, or the penalty for early payment also come into play.

By combining all this data, you will get a monthly payment amount. That is the key figure that will help you decide if you can afford the loan. But how to calculate that monthly payment? Do it in the easiest way possible, using a commercial loan calculator.

When you know how much your monthly payment will be, make sure it does not exceed 80% of your net income. It is always advisable to leave a space for unexpected expenses or fluctuations in your income.

It is also essential that the return you expect from your investment exceeds the total cost of your loan, including the interest rate and other fees. In other words, before making a final decision, you must calculate the profits you will get thanks to the loan and compare that figure with the total cost of the loan

If all the numbers make sense, all you have to do is apply for a commercial loan. Consider Ferdies Financial as your best option: we offer commercial loans of up to $ 400,000 to grow your business, with interest rates ranging between 1% and 2.5% per month and terms ranging from 24 to 60 months. To calculate our interest rates, we mainly take into account your personal credit and the overall cash flows of your company.

We offer more flexibility than traditional bank lenders, since you don’t need to present a guarantee. We accept applications with bad credit, and we also offer financing options for business owners only with ITIN.

All you have to do to take the first step is to submit your application online. You will be able to know immediately if you qualify for financing. In less than 24 hours, one of our business loan specialists will contact you to guide you through the loan process.