The 4 Best Low-Interest Business Loans and How to Qualify

If you are in need of a low-rate business loan, here are the first loans you should consider:

1. SBA Loan
2. Traditional Bank Loan
3. Medium-Term Loan
4. Business Line of Credit

These generally offer the lowest interest rates and are the most affordable for small businesses, but keep in mind that they are more challenging to obtain. Learn more about low-interest business loans and how to qualify in our guide below.

Business loans with low-interest rates are almost always longer-term business loans. This means that, while low-interest business loans might be more affordable in the short term, they aren’t necessarily “cheap” or low-cost business loans.

With less frequent and lower payments, long-term loans with low interest rates will be easier to pay back and cause less of a strain on your business’s cash flow than shorter-term loans with higher interest rates.

That said, because longer-term business loans will allow you longer to pay down your debt, they will accumulate more total interest—despite their low interest rates. Meanwhile, short-term loans with high interest rates will only accumulate interest over a quick repayment period, making their total interest cost lower despite their higher interest rate.

This surprising distinction between low-interest business loans and cheap business loans flows from the fundamental difference between cost of capital vs. APR, which can be easily conflated.

Don’t write off low-interest business loans just yet though. Below, we’ll explain everything you need to know about the four types of lowest-rate business loans available on the market, as well as the best lenders to work with in each category.

Many business owners assume that SBA loans are low-interest loans for small businesses that come directly from the SBA. While the first part of this is true, the SBA is merely guaranteeing low-interest small business loans from an SBA-approved lender.

The SBA guarantees a large portion of the funds—around 85% of the loan amount—which ultimately allows them to have the best interest rates for business loans.

This is great news for small business owners looking for a low-interest rate business loan. The SBA’s guarantee removes most of the lender’s risk in lending to a small business. If for some reason, you can’t pay the loan back, the lender still gets the guaranteed portion back from the SBA.

As a result, small businesses gain increased access to desirable, low interest rates on business loans, even if they’re not perfectly qualified. However, these desirable rates and terms mean SBA loans are highly competitive.

Bank business loans are almost always long-term loans with low interest rates. Currently, bank rates on these low-interest business loans range from 2.55% to 5.14% for large national banks, and 2.48% to 5.4% for small national and regional banks.

These low-interest business loans are the most generic and easy-to-understand as far as business loans go. You receive a lump sum of capital that you’ll pay back over a set period of time, with fixed repayments plus interest.

And in the case of bank business loans, the lump sum loan is typically large, offered over a long term, with low interest rates.

That’s not the only low-interest business loan a bank typically offers, though: They’ll also often have business lines of credit, equipment financing, and commercial real estate loans in their offering.

Next on our list of business loans with low interest rates are medium-term loans.

Unlike “traditional” term loans, medium-term loans are typically offered by alternative, non-bank lenders. These lenders offer loans that are structured similarly to bank loans, but are different in a few key ways:

They offer slightly smaller loan amounts (up to $1 million), slightly shorter terms (up to five years), and slightly higher interest rates (ranging from 6.5% to 20%).

While these lenders don’t offer business loans with the lowest interest rates on the market—banks and SBA lenders do—they do still qualify as low-interest business loans, and they’re far more accessible and quick-to-fund than the lowest-interest business loans.

Though business lines of credit also traditionally come from banks, new, alternative lenders have entered the small business lending space in order to offer this low-interest option to slightly less-qualified borrowers.

With a business line of credit, you’ll gain access to a pool of funds that you can draw from whenever you need to for your business. You only pay interest on the funds you draw, and once you repay them, your credit line will return to its original limit. It works a lot like a business credit card, but without the physical card and typically with much higher credit limits and more favorable interest rates.

Like medium-term loans, lines of credit from alternative lenders come with smaller amounts, shorter repayment agreements, and slightly higher interest rates than what you’d get with a line of credit from a bank.

Their rates still qualify them for the list of low-interest business loans, though, ranging from 7% to 30%.

Business lines of credit simply sit in your business’s back pocket, interest-free until used, which makes them the only low-rate business loans that are available at a moment’s notice.

If you’re new to the world of small business lending, then it’s easy to jump into a search for a business loan assuming you’ll find the lowest interest rates on the market. In reality, it’s not always so simple.

The rates and terms of a business loan come down to two things: the details of the business applying for the loan, and the details of the loan itself.

Here are the factors that determine whether or not a lender will offer you a low-interest business loan:

Your personal credit score will play an important role in your business loan application and, as a result, in whether you qualify for low-interest business loans.

Your personal credit score shows how reliable you’ve been with your personal debts in the past. It’s hard to separate you (the owner) from the business’s financials—if you’ve personally been a responsible borrower, then you’ll probably exhibit the same behavior paying back your business’s debt. A personal credit history that says differently, though, won’t instill confidence in the lender.

Low-interest business loans are, in part, affordable due to the fact that the borrowers who qualify have stronger credit scores. High credit scores signal that lenders will likely get their money back, so they don’t need to offset the potential loss with higher interest rates.

A company’s time in business also has a large impact on what interest rates it can qualify for. It’s a simple but important credential. 

A new startup business is a lot riskier for lenders to work with—only about half of all businesses make it to the five-year mark. This means that it’s risky to lend to a young business due to the chance that they might not be around to repay their financing. 

On the other hand, a business that’s more established is more likely to qualify for low-interest business loans, since they’ve already they can handle their finances for some time.

Being around for two or more years proves that you can weather the regular ups and downs that come with running a small business. Because this is a much less risky deal for the lender, more established businesses will pay less in interest. So, if your business has just hit an anniversary, it might be a great time to apply for a loan. 

Another aspect of your business that lenders will look at is your business’s industry.

This factor is pretty simple: Some industries are just riskier than others.

For this reason, the affordability of the interest rates you qualify for could depend on the industry you’re in. For instance, restaurant entrepreneurs tend to have a harder time finding restaurant loans due to the risk level of that industry.

However, if you’re in an industry that lenders perceive to be safer, you might have a better shot at qualifying for low-interest loans for your small business.

Most low-interest small business loans, like bank loans or SBA loans, have a longer timeline for application and approvals than other loans.

While this is an inconvenience for business owners in need of fast funding, the wait means that you’ll likely get a lower interest rate—the lender is spending time reviewing your full business credentials and becoming fully confident in your reliability. If they spend the time vetting your business, you’ll likely qualify for a low-interest business loan.

However, there are now alternative, non-bank lenders that offer more accessible business loans. They require less paperwork to qualify and can fund your loan just days after you apply (sometimes the same day you apply).

But because they aren’t spending the time doing their due diligence to see if you’re truly a qualified borrower, and in general work with less-qualified borrowers, these lenders are typically offering less affordable small business loans.

While it doesn’t make or break a low-interest business loan versus a high-interest one, the term of the loan will impact your rates. Generally speaking, the lowest-interest business loans will come with the longest terms. This is because of the cost of capital vs. APR issue we covered earlier—long-term business loans with low interest are the only way for business owners to afford the cost of capital attached to paying off debt for years.

If your credit score precludes you from qualifying for a business loan with low interest, then take care to build it. It doesn’t happen overnight, but as you keep paying your debts on time and in full, your score will gradually reflect the work you’re putting in. Payment history makes up the majority of what goes into your credit score, so focusing on mastering the art of an on-time, full-balance payment goes a long way.

And in the meantime, you can be sure to not take on too much debt on each account. This means that you shouldn’t have your credit utilization across your credit accounts higher than 30%. A higher credit utilization correlates with riskier borrowers, so taking on too much debt relative to your combined credit limits will hurt your score.

Staying in business is a simple recommendation, yes.

But simply keeping your business up and running and becoming more established will do wonders toward opening up the option of better, lower-interest business loans in the future.

Continue handling your business with the utmost care, and once you’ve hit the two-year threshold, you’ll be amazed at how many low-interest business loans will be available to you. Pair that with the steps you’re taking to build your credit score, and you’re well on your way to finding the most affordable business loan option for your business.

Finally, one surefire way to avoid high-interest business loans is ensuring that you never wait to seek funding until it’s an emergency. Quick business loans are almost never low-interest business loans. If you wait until you absolutely need funding to start your search, your only options will be expensive ones.

To prevent this scenario, we suggest accessing a business line of credit at as low of a rate as possible, and then keeping these funds in your back pocket if an emergency arises. Then you won’t be forced to take a less-favorable loan in the moment.