What are current unsecured business loan interest rates?

Interest rates on unsecured business loans can range anywhere from 7% to 75% APR, depending on the type of loan you choose, the lender and your business’s credit profile. It’s possible to get low interest rates on an unsecured business loan, such as 7% to 8% APR, if your business has good credit.

But lenders typically offer higher rates for unsecured versus secured business loans since unsecured loans aren’t backed by collateral. These loans pose a higher risk to lenders because lenders cannot immediately seize business assets to recover the loan in the event of default.

Below, you’ll find current unsecured business loan rates for different unsecured business loans and what to look for when comparing loans.

Understanding business loan costs

The cost of a business loan is directly affected by interest rates, the amount borrowed and the repayment period. The higher the interest rate, the more you’ll pay to borrow that money. 

Lenders charge interest rates in different ways, but an annual percentage rate is the most common and most accurate picture of the total cost. Types of interest rates lenders use:

• Annual percentage rate: The APR uses a percentage to calculate the interest on the loan amount agreed upon. It incorporates fees into its calculation, so the APR may be slightly higher than the interest rate in your loan agreement.
• Simple interest: Some lenders charge a simple interest rate, which means that it shows the interest rate you’ll pay without incorporating fees. The actual cost of the loan will exceed this rate.
• Monthly or weekly fee: In some cases, the lender will charge a flat fee or percentage of your outstanding balance either weekly or monthly.
• Factor rate: This rate uses a decimal like 1.10 or 1.40 rather than a percentage. The decimal gets multiplied by the entire loan amount at the beginning of the loan. Factor rates often convert to high interest rates. Make sure you understand the total loan cost before signing for a loan with factor rates.

Current unsecured business loan interest rates

Consult this chart for a better idea of the interest rates you’ll find based on the type of unsecured business loan and lender.

Unsecured term loans

Some unsecured term loans come with either a low loan amount or short repayment terms to offset the risk of not having business assets tied to the loan.

Since features differ among lenders, compare the unsecured business loan interest rates and terms that these lenders set.

Unsecured business lines of credit

A business line of credit provides a way for businesses to access funding as expenses crop up. The lender sets a credit limit based on the business’s ability to repay, and the business repays any amounts drawn over a set repayment term, such as one to two years.

Some banks will set a lower maximum credit limit, like $100,000, for unsecured lines compared to secured lines. Take a look at what traditional banks and online lenders offer for this type of unsecured loan.

Business credit cards

Business credit cards offer a solid option for smaller purchases while letting the business owner earn rewards. Perks vary, including cards with no annual fee and the option to earn cash back on qualifying purchases.

Fair and bad credit borrowers can find credit-building options, though most unsecured business credit cards need a strong credit score of 670 or higher.

Invoice factoring

Invoice factoring is an alternative type of business financing that doesn’t require collateral because it’s guaranteed by the business’s future invoices. Instead of interest, factoring companies charge a fee on the entire outstanding invoice amount.

The fee structure may include a time window, such as invoices getting paid within 30 days, before the fees are raised or reassessed.

Merchant cash advances

Merchant cash advances (MCAs) allow your business to get funding based on future credit card sales. Most MCAs assess a factor rate instead of an interest rate, which gets multiplied upfront by the entire amount borrowed.

MCAs are a high-risk type of loan that businesses use if they can’t get funding through a conventional business loan. That’s because merchant cash advances have high approval rates as long as your business has adequate sales volume. Yet since these loans can come with steep interest rates in the triple digits, you may want to only use MCAs in an emergency.

How to get the best loan rates

Loan interest rates aren’t set in stone until you sign the loan agreement. Take the time to use these strategies for getting the best loan rates possible.

• Improve your credit score. You can improve your personal and business credit score by making all payments on time for vendors, credit cards and loans. You can also take out trade credit with vendors, which allows you to buy supplies from vendors that you pay for over a few months. These tips help you establish and build your credit score.
• Offer collateral or a general lien on business assets. Lenders tend to offer lower interest rates for secured loans versus unsecured loans. If you have valuable assets you can use to back the loan, the lender may reward you with a lower rate.
• Get multiple quotes. One of the best ways to ensure you’re getting the lowest rate is to prequalify for a loan from multiple lenders. You can then compare the loan features and interest rates to select the best option for your business.

Factors that influence unsecured business loan rates

The exact interest rates you’re given for an unsecured business loan are influenced by the lender you choose, the type of loan and your business revenue, among other requirements.

• Lender

  You’re more likely to get lower interest rates with a traditional bank than with an online lender. But underwriting may take longer since the bank may need extra time and documentation to verify that your business can repay the loan.

  Traditional banks also tend to work with businesses with a top-notch credit history, such as a score of 670 or higher. Online and alternative lenders typically have more flexible eligibility criteria, and may be a good fit if you have a lower credit score closer to 500.

• Type of loan

  Business lines of credit and term loans offer some of the lowest rates available for unsecured loans, provided you have good credit.

  If you go with a business credit card, the starting rates are higher than some business loans. Credit card APRs might be lower than or on par with other loans if you have less-than-perfect credit, especially if the card has a 0% APR offer.

• Credit score and payment history

  The lowest rates are reserved for businesses with good credit, such as a score of 670+. In general, lenders keep tighter requirements for unsecured loans than secured loans to ensure that the loan gets repaid.

  Otherwise, you might have to go with a bad credit business loan, which charges higher rates and fees.

• Revenue

  Your business’s financial statements play a large role in any business loan, but especially an unsecured loan. Lenders will want to see adequate cash flow and low debt, such as a debt-to-income ratio of less than 36%.

  Lenders may also use the debt service coverage ratio to see how much revenue your business generates above debt repayments. It typically likes to see this ratio at 1.25 or higher, meaning that your revenue is 1.25 times that of your debt repayments.

• Fees

  Aside from interest rates, you’ll want to account for business loan fees that the lender may charge you. These fees will increase the cost of the loan. Common fees include:

  • • Origination fee. Usually a percentage of the loan amount like 1% or 5%, this fee is assessed for the lender processing the loan application.

  • • Administrative or documentation fee. Some lenders charge these fees  to cover administrative costs related to processing the loan.

  • • Prepayment penalty. This fee is sometimes charged when you pay off the loan early to offset the lender’s loss in interest paid. Not every lender charges this fee, so check your loan agreement before paying off the loan early.

  • • Draw fee. This fee is a percentage of the amount withdrawn from a business line of credit. It’s usually charged each time you draw funds from the credit line.

  • Factor rate. This fee is a decimal that gets multiplied by the entire loan amount instead of using an interest rate. You usually have to pay the entire fee even if you pay off the loan early.

Bottom line

With multiple types of unsecured loans available, interest rates can vary significantly. Unsecured business loan interest rates are generally higher compared to secured loans backed by personal or business assets. Compare offers from multiple lenders and choose a loan with the most favorable rates and terms for your business to get the best deal.