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Summer 2020 small business loan rates: SBA loans and beyond

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Small business loan rates aren’t known for their consistency. Lenders use a variety of tools to constantly assess the market and determine how much to charge businesses for a loan. 

The most creditworthy borrowers are charged the lowest interest rate, also known as the prime rate (currently 3.25%). New businesses, on the other hand, may struggle to get approved for a loan, much less secure a favorable rate. 

As a result, the first stop for many entrepreneurs is a Small Business Administration (SBA) loan. SBA loans range from catch-all cash infusions to targeted relief efforts for economic emergencies like the COVID-19 pandemic. And the repayment terms are often better precisely because they target small business owners. 

Below, we’ve got a rundown of the SBA loan rates, current as of May 2020, as well as other popular funding options. See which loan products are most cost-effective, and how to stretch your funds further. 

Overview of the current small business loan rates

Compare rates quickly with this roundup and then read up on the loan application process for your top choices. 

  • SBA 7(a) loan: 5.5% to 8%
  • SBA Express loan: 7.75% to 9.75%
  • SBA Microloan: 6.5% to 13%
  • SBA 504/CDC loan: 2.38% to 2.79%
  • SBA Paycheck Protection Program loan: 1% to 4%
  • Business credit card: 15.37%
  • Business line of credit: 8% to 80%
  • Traditional bank loan: 4% to 13%
  • Online bank loan: 7% to 99.7%

A business loan calculator can help you sort through the different loan terms and fee structures. As you can see, SBA loans lead the pack when it comes to interest rates. See if there’s a loan program for you below.   

A detailed look at the small business loan rates for 5 SBA loans

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For some loans, the SBA limits how much interest lenders — banks, credit unions, nonprofits, and more — can add on top of the prime rate. But that’s not always the case.

Certain loan programs give the financial institution more leeway to set the fixed or variable interest rate. If that’s the case, your loan cost will depend on factors like your business credit score, cash flow, annual revenue, and business plan. 

Take the ranges below as reference points when you're weighing different lenders and offers. 

An important note on SBA loan relief

As part of its COVID-19 debt relief initiative, the SBA is paying 6 months of principal, interest, and fees on any SBA 7(a) loans, Microloans, or 504 loans disbursed before September 27, 2020. The terms are automatically applied if you currently have these loans or receive funds before the deadline. 

SBA 7(a) loan 

Current small business loan rate: 5.5% to 8%

Best for: Most businesses in need of working capital over a short- or long-term period

The 7(a) loan program is by far the SBA’s most popular lending option. These government-backed loans share two defining characteristics: flexibility and affordability.

Broadly, 7(a) loans can be used as liquid cash or to invest in business assets. Small business owners can apply for up to $5 million through a bank or other financial institution. The SBA caps the interest rate based on loan amount, ensuring your borrowing costs are low and controlled. Here are common uses for 7(a) loans: 

  • Startup funds
  • Working capital
  • Inventory
  • Equipment
  • Construction, expansion, or renovation
  • Land purchases
  • Refinancing debt

Receiving an approval or denial can take up to three months, so it’s best to apply early. 

SBA Express loan

Current small business loan rate: 7.75% to 9.75%

Best for: Businesses that need a solution like the SBA 7(a) loan in a short timeframe

If time is of the essence for your business, consider an SBA Express loan. The program considerably expedites the 7(a) loan process so that applicants receive an approval or denial in 36 hours or less. Businesses may apply for up to $350,000 with a term length of up to 7 years. 

Speed, however, comes at a price. These short-term loans are costlier than traditional 7(a) loans, tacking 4.5% to 6.5% on to the current prime rate. Eligibility requirements, however, are the same as they are for the regular 7(a) loan. 

SBA Microloan

Current small business loan rate: 6.5% to 13% 

Best for: Businesses that need less than $50,000 in working capital 

The SBA Microloan program resembles the 7(a) loan program on a smaller scale, but it has a couple key differences. Up to $50,000 is available for working capital, inventory, equipment, supplies, fixtures, and other business costs. But unlike the 7(a) program, these loans can’t be used for debt refinancing or real estate purchases. 

To get a Microloan, you’ll have to apply through an approved nonprofit lending organization, known as the “intermediary.” Intermediaries can mark-up loans (up to a limit) so you’ll have to hammer out the final rate with the lender. 

That said, the average Microloan interest rate was on the low end at 7.5% in 2019. And many SBA Microloans don’t require down payments due to their limited size. The average loan last year was $14,735.

SBA 504 loan

Current small business loan rate: 2.38% to 2.79%

Best for: Business owners who need to purchase real estate and other fixed assets

The SBA 504 loan, also called the Certified Development Company (CDC) loan, fosters healthy company growth and job creation. It’s considered the SBA’s version of a commercial real estate loan — with significantly lower interest rates. A 504 loan offers fixed-rate financing for land purchases, equipment, and renovations. You can also use it to acquire or refinance fixed assets. 

In contrast to the other loan programs, 504 funds can’t be used for working capital or inventory purchases. If your business is looking to start up or scale, this is a cost-effective solution. Generally, the loan is funded by three parties: a CDC (a nonprofit organization), a financial institution, and your business. That means most 504 loans require you provide a down payment to proceed. 

Paycheck Protection Program (PPP) 

Current small business loan rate: 1% to 4%

Best for: Business owners who need help paying staff due to the negative impact of COVID-19

Small businesses that lost funds due to the coronavirus shutdown can apply to the Paycheck Protection Program (PPP) to get back on track. A PPP loan is fully forgiven if you use at least 75% of funds for payroll and the rest for rent, mortgage interest, and utilities. Up to $10 million, or 2.5 times your payroll expenses, is available. 

In this case, “staff” includes owners — you can use PPP loans to draw your salary. Keep in mind that you can’t include independent contractors or subcontractors in your payroll costs. They’re eligible for PPP loans themselves. Apply through an SBA 7(a) lender or federally insured depository institution or credit union. (If you need COVID-19 relief, try these 6 other small business loan options.)

For all SBA loans, there are often fees beyond the interest rate. They’re typically charged by the small business lender and not the SBA. This could include an origination fee, closing costs, or prepayment penalties. Be sure to factor these fees into your monthly payment or overall budget.

Noteworthy SBA loan alternatives

SBA loan interest rates are some of the lowest available to new business owners. But if the loan terms don’t align with your business needs, you shouldn’t sign on the dotted line. Here are four other loan products that extend your purchasing power: 

  • Business credit card: (15.37% interest rate) The right business or corporate card helps your company excel. Applications are quick and spending limits grow with your business. Meanwhile, you earn helpful rewards — and improve your credit score — just by making purchases as planned.
  • Business line of credit: (8% to 80% interest rate) Lines of credit offer slightly more financial versatility than loans and credit cards. Access funds up to a preset limit, typically between $10,000 and $10 million, using checks, debit cards, cash advances, and more. 
  • Traditional bank loan: (4% to 13% interest rate) Large banks and credit unions offer loan terms that rival SBA loans — to established customers. If your business is at least two years old and has a strong credit score, your pool of lending options is larger.
  • Online bank loan: (7% to 99.7% interest rate) Online lenders have streamlined the borrowing process. Small business owners can receive a response — and crucial funds — in hours rather than weeks or months. Loans are more expensive, but companies with thin credit profiles are more likely to be approved.

Upfront investment, long-term growth

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Small business financing is an uphill battle. Loan approval rates have plummeted and demand has only grown. After spending weeks or months to win a loan for your business, don’t leave money on the table. Let your funds do the heavy lifting with a cash management account (CMA) like Brex Cash

Behind every successful small business owner is the loan that got them started, helped them expand, or delivered stability when they needed it most. No matter which small business loan you plan to apply for, see how you can improve your creditworthiness before you begin.

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