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Small Business Loan Rates

Updated on December 27, 2012

Small Business Loan Rates

Businesses needing capital look at small business loan rates to see if it makes sense to take on debt. There is no need for a small business to take on debt if it will only burden it with excessive monthly payments. Thankfully, there are good rates from the federal government, commercial lenders, and not-for-profits that want to help small businesses succeed.

SBA Loans
The SBA leads the pack in providing quality small business loan rates. Their most popular loan product, the 7(a) Loan, which is 2.25% to 2.75% over prime. Most of the loan programs are tied to the prime interest rate. The prime interest rate is the rate banks charge each other to borrow money, hence, the base rate for any loan. Also, good news for small businesses with SBA loan products is the maximum length of time for loans is set.

Commercial Loan Rates
SBA loans are notoriously slow and paperwork intensive, it is the federal government after all. Also, the approval process for SBA loans are also very stringent. Finally, the SBA only offers loan guarantees and an entrepreneur will still be working with a lender to make it happen.

Very often when a lender sees that an entrepreneur who will qualify for a loan, the lender will stop the SBA process and just offer attractive small business loan rates for a conventional commercial loan. Bank small business loan rates are usually very competitive and will match or beat the SBA rates. What the lender is giving up is the governmental loan guarantee but if a business has the capital and creditworthiness then they are anxious to lend.

If capital or credit is a bit of a question, then commercial lenders will raise the rates, but usually will be willing to lend if collateralization is not an issue. They may be willing to be creative with personal equity as collateral. However, a strong balance sheet or cash-flow statement will be needed.

Business Development Rates
There are community organizations that offer small business loans that are very lucrative while simplier qualifications for borrowers. The organizations are very good for start-ups. However, community business development organizations typically serve a stated demographic so everyone may not have access.

One example is Albuquerque's ACCION, which has small business loan rates of 2% to 9%. And they are willing to loan as little $200 to a maximum $150,000. They also help small businesses with no credit or still in start-up mode.

Another is the Citizen Potawatomi Community Development Corporation which offers rates that are very competitive to conventional loans. But they can offer much smaller loans like a minimum $5,000 up to $300,000.

However, remember these are community based organizations and a business needs to community members. ACCION serves Albuquerque and the CPCDC serves Native Americans. Still, organizations like these exist all over the US and can help a business in their own community with good small business loan rates when conventional lenders will not even look at them.

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