When you take out an unsecured business loan, you don’t have to provide collateral to secure the loan. Since the lender doesn’t have an asset it can claim if you default on the loan, unsecured business loans tend to cost more than secured business loans. But how much an unsecured loan will cost depends on several factors.

Bankrate insight

Want to learn more about collateral? Our guide covers what it is, what counts as collateral and the advantages and disadvantages of securing a loan with assets.

Interest rates

When you take out any loan, one of the biggest factors that impact its cost is the interest rate. Expect rates to be higher than unsecured loans since the lender takes on more risk offering an unsecured loan.

Interest rates can be simple or compound.

Simple interest is charged as a percentage of the total loan amount, interest rate, and loan length. For example, if you have a $10,000 loan with a 5% interest rate, you would pay a total of $500 in interest every year you hold on to the loan. If paying off the loan takes three years, you’d pay $1,500 in interest ($500 x 3 years).

Compound interest is the most common way that lenders charge interest. When interest compounds, you have to pay interest on the principal and the interest that accumulates on the remaining balance.

How does this work? Let’s say you have a $10,000 loan with a 5% interest rate that compounds annually. If the loan has a term of 5 years, total interest over the life of the loan will be $1,322.74. You can use a loan calculator to see for yourself how interest compounds for different loan amounts.

Bankrate insight

Check out our guides on interest rates for more information:


The annual percentage rate (APR) is the yearly cost of a loan. It includes the interest rate and loan fees and is expressed as a yearly percentage rate. Since it offers a more complete picture of your total loan costs, APR rates look higher than interest rates.

Factor rates

Factor rate is another way to define the cost of a loan. It’s more commonly found with short-term business loans or cash advances.

Unlike interest rates, factor rates are expressed as a decimal. To find the total repayment amount with a factor rate, multiply the loan amount by the factor rate:

Loan amount x factor rate = total repayment amount

So, if a loan has a factor rate of 1.2 and the loan is for $10,000, you will need to repay a total of $12,000 ($10,000 x 1.2 = $12,000), not counting any additional fees.

You should convert a factor rate to an APR to compare different loans and to get an idea of how expensive loans with factor rates can be compared to interest rates or APR.


You’ll also need to consider business loan fees when looking into an unsecured business loan, as these will vary by lender. Here are just a few common fees you may encounter:

Annual fee Some lenders charge a fee each year for business lines of credit to keep them active.
Application fee You may be charged this fee to submit an application for the loan.
Closing costs Commercial real estate loans often come with closing costs (similar to a mortgage). These can include attorney fees, appraisal fees, credit report fees and others.
Draw fee Some business lines of credit charge this fee when you spend money from your account.
Late payment fee If you make a payment later than the due date, you can get charged this penalty fee.
Maintenance fee Similar to an annual fee, a maintenance fee may be charged for a business line of credit to keep it active. This fee can be charged monthly or annually.
Non-sufficient funds fee If the lender attempts to draw funds for your payment and your account does not have enough money to make the full payment amount, they may charge you an NSF fee.
Origination fee Typically charged as a percentage of the loan amount, lenders charge an origination fee when you initially take out the loan. The fee is typically 0.5% to 5% of the loan amount, but some lenders may charge 8% or higher.
Prepayment penalty Some lenders charge this fee if you pay back your loan early.
Underwriting fee A lender carries out an underwriting process to determine how much of a loan they will give you and what your interest rate will be. The fee for this process can be rolled into origination fees, but it may also be charged as a separate fee.

Repayment terms

Every loan comes with repayment terms, meaning the amount of time within which you must pay back the loan. If you pay the amount required for each monthly payment, you will pay off your loan within the agreed-upon repayment terms.

It can be helpful to pay extra money back each month because it can help you pay off your loan sooner and may save money. Because the interest compounds, the more money you pay back earlier, the less interest you will pay interest on as long as your lender doesn’t charge a prepayment penalty.

Other factors that impact the cost of an unsecured business loan

Getting a favorable interest rate and loan terms requires that you have certain factors working in your favor. Your credit score, time in business, and the revenue you bring are important factors that help determine what lenders offer you. The higher all or any of these numbers, the better your interest rate and terms will be, and the less your business loan will cost.

If you have bad credit, there are bad credit business loan options. But you should expect interest rates to be higher. This means your business loan will be more expensive.

Bottom line

Unsecured business loans are a great way to help you manage your business. But consider all the costs associated with it and have a plan to help you manage your loan successfully.

Frequently asked questions

  • The cost of a business loan can vary based on a few factors. Different lenders will have different interest rates and fees they charge for loans. Plus, the exact loan type you want and the amount you qualify for can impact the total cost of the loan. A business loan calculator can help give you an idea of what you can expect to pay for a loan.
  • Interest rate ranges vary depending on the loan type and lender. Here’s a look at the average rates you can expect:
    • Traditional banks: 5.5% to 7% (APR)
    • Online lenders: 6% to 30% (APR)
    • Merchant cash advance: Factor rate of 1.09 to 1.5+
    • SBA loans: 10% to 13.5% (APR)
    • Business lines of credit: 4.4% to 30% (APR)
  • The term length for a business loan depends on factors like the type of loan, the lender, and your creditworthiness. Long-term loans can range from seven to 25 years. If you have bad credit, lenders may offer short-term loans that must be repaid in under two years.