Commercial loan interest rates vary depending on the type of loan, the lender, funding speed, collateral, economic conditions, and other factors.
Here we explain commercial loan interest rates, how they are calculated, and how to get the best rate on your next business loan.
What are your current business loan interest rates?
Bank Commercial Loan Interest Rates
Bank Commercial Loan Type Median Maximum Rate New Fixed Rate Term Loans 7.711 10.75 New Floating Rate Term Loans 8.806 11.250 Bank Commercial Loan Rates. Source: Federal Reserve Small Business Credit Survey, 3rd Quarter 2023
The Federal Reserve conducts a survey of U.S. commercial banks' small business lending activities. The voluntary results of this survey are reported in the Kansas City Fed's Small Business Credit Survey. The rates shown above are based on this survey.
SBA Loan Interest Rates
SBA Loan TypeMaximum Interest RateSBA 7(a) Fixed Rate LoanUp to 13.5-16.5%SBA 7(a) Variable Rate LoanUp to 10.75-13.25%SBA Express LoanUp to 13-15%SBA 504 Loan6.59-7.20%SBA Loan Maximum Interest Rate
More information on current SBA loan rates can be found here.
The U.S. Small Business Administration primarily guarantees loans made by its member financial institutions. The only loans the agency makes directly are disaster loans, including Economic Injury Disaster Loans. The interest rates listed above are the maximum rates for the agency's most popular loan programs.
Commercial Real Estate Loan Rates
5.25% — 10%75% — 90% LTV Commercial Real Estate Loan Rates
Commercial mortgage interest rates are subject to change frequently and are determined by a variety of factors, which we will discuss below.
What is a commercial loan?
Essentially, a commercial loan is a business loan, not a personal loan.
A commercial loan refers to a loan made to a business rather than an individual (debt-based lending).
The term is sometimes used to refer to loans between banks or other types of financial institutions and businesses, and sometimes to refer to specific types of commercial loans, such as commercial real estate loans or commercial term loans.
How are commercial loan interest rates determined?
With the exception of SBA loans, where maximum interest rates are determined using a formula set by Congress, lenders are generally free to charge any APR they want on commercial loans.
Some commercial loans have higher interest rates but provide capital to business owners who can’t get financing through others, and some may provide funding very quickly with minimal screening, for example.
Pricing is based on a few factors:
Interest Rate Index
Many lenders base the interest rates they charge on other interest rates in the economy, such as the prime rate, the five-year Treasury note (or T-bill), the federal funds rate, LIBOR (which is largely being phased out), etc. Variable rate loans are usually tied to an index such as the prime rate. SBA loans may be tied to either the prime rate or the SBA fixed rate.
When the Fed raises interest rates, loan rates tend to rise as well, and vice versa. Not all types of loans are directly related to these indices, but there is usually some relationship.
Economic factors
Lenders may adjust the interest rates they offer based on economic conditions. Lenders are in business to make a profit, not to make a loss. Lenders must take into account economic factors such as inflation that may make it difficult for a business to repay a loan.
Credit score
Lenders don't want to incur losses by taking out loans that aren't repaid, and a credit score helps them evaluate whether a borrower has a track record of repaying loans and, by extension, whether they're likely to repay loans in the future.
Most lenders consider creditworthiness when evaluating applications and setting interest rates. They do this by reviewing an applicant's personal credit report and/or credit score. Some lenders review a business credit report and/or business credit score, and some lenders review both. Borrowers whose applications are deemed high risk may be approved, but at a higher interest rate.
Learn how to establish business credit here.
collateral
Collateral is property that is pledged as security for a loan. If the borrower does not repay the loan, the lender can seize the collateral.
Collateral, whether it be real estate for a commercial mortgage or equipment for a commercial long-term loan, can affect interest rates.
Secured loans generally have lower interest rates than unsecured loans.
Personal guarantees, and recourse and non-recourse loans, are similar to collateral in that they give lenders more options if the loan isn't repaid. Agreeing to be personally liable if your company doesn't repay the loan can make it easier to qualify and potentially get better pricing.
industry
In some cases, your interest rate may vary depending on the type of industry you operate in. (NAICS and SIC codes are often used to identify your industry.)
Loan Term
The interest rate on a loan that you have to pay back in one year can be very different from the interest rate on a loan with a 10-year repayment term, and other things being equal, shorter-term loans often have lower interest rates.
Commercial Mortgage Rates
Commercial mortgage interest rates often take certain factors into account.
Loan-to-Value Ratio
The more you put down, the lower your loan-to-value ratio (LTV). Loan-to-value ratios compare the value of the property to the amount of the loan. For example, if your down payment is 25%, your LTV is 75%. A larger down payment means you're less risky for the lender, and you can get a better interest rate.
Property Type
Are you purchasing a multi-family property and need an apartment loan? A single-family investment property? A laundromat, self-storage facility or commercial office building? Each of these types of property carries certain risks and will have interest rates priced accordingly.
Owner-occupied properties tend to be the least risky. They are properties that the buyer (renter) will live in. Homeowners typically work very hard to maintain their residences.
Hard money loans used to finance investment properties are often more expensive but don't usually require good credit.
Loan Term
We mentioned earlier that the loan term can affect the interest rate. With commercial mortgages, it's not uncommon for the repayment term to be shorter than the amortization period.
For example, a lender may base monthly payments on a 20-year amortization term, but the full payment is due after 10 years, at which point a balloon payment on the remaining balance will occur, and the borrower will need to refinance or sell the property.
How do I find the lowest commercial loan interest rates?
Of course, you want to get a competitive interest rate when borrowing, but there's no point in finding the lowest interest rate if you don't qualify or if the loan isn't a good fit for your business needs. (For example, if you need a 10-year repayment term, a short-term loan with a low interest rate isn't right for you.)
Instead, look for the best interest rate you qualify for for the type of financing your business needs.
Banks and credit unions often offer low-interest commercial loans to small businesses, but the loan application process is often lengthy. And if you're a new business or have poor credit, it can be hard to get a business loan from a bank. That doesn't mean you should try, but understanding the application process and eligibility requirements means you won't waste time if you don't qualify.
Remember, low interest rates can come from unexpected places. Below are two examples of business loans with 0% interest.
Business credit cards with 0% introductory APR can be used to finance purchases over several months with no interest, and some of these card offers last for a year or more. Kiva, a nonprofit micro-lending company with a crowdfunding side, offers 0% loans up to $15,000.
These options aren't for all types of businesses — for example, you're unlikely to finance the purchase of commercial real estate solely with a business credit card, which typically requires a larger loan amount and a longer loan term.
But for businesses that need a small line of credit for working capital or a specific project, these options may be just what they're looking for.
Historical Commercial Loan Rates
Historical interest rates for any type of small business loan are difficult to uncover because many loans are not publicly collected or tracked.
The St. Louis Fed used to publish the Survey of Business Lending Terms (STBL), which made it easier to compare historical interest rates, but it discontinued it in 2017. Information on small business lending is now collected by the Kansas City Fed, which publishes the Small Business Credit Survey.
The graph in this study shows how commercial loan interest rates have changed over time.
Weighted average interest rate for period (year, quarter)2023:Q38.1942023:Q28.1102023:Q17.5692022:Q46.9762022:Q36.1552022:Q25.4592022:Q14.7632021:Q44.7142021:Q34.1222021:Q22.5372021:Q11.4032020:Q44.7812020:Q33.3172020:Q21.1542020:Q15.3872019:Q45.3282019:Q35.7032019:Q26.2412019:Q16.4222018:Q46.4372018:Q36.2482018:Q26.2442018:Q15.9342017:Q44.970Source: Small Business Lending Survey, Kansas City Fed
Commercial Loan Rates: Conclusion
If you’re looking for a small business loan, you’ll need to consider several factors, including the commercial loan APR.
Fees, interest, and other costs Repayment terms Collateral or personal guarantees Loan or financing type
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