If you're looking for finance to grow or build your business, it's important to make sure the cost of the loan doesn't impact your business operations. A low interest rate business loan can help keep your repayments down, especially if you need access to a large amount of finance.
Find out what to look for and compare low rate business loans below.
What is a low rate business loan?
A low rate business loan is any loan option available to businesses that offers a low interest rate. Generally speaking, a business loan will offer a lower interest rate than a personal loan, with fixed rates available from around 4.5%.
However, the rate you receive will depend on the type and size of the loan you require, the type of business you have, whether you use an asset as security against the loan and your personal credit history.
You can also borrow more on a business loan, with business lenders offering loans anywhere from $2,000 into the millions of dollars. Some lenders may also offer loan terms up to 20 years, but many will require you to repay the loan within five years.
Types of low rate business loans
- Secured business loan. A secured business loan requires you to use an asset, generally a commercial or residential property, as security against the loan. In the event you fail to make your repayments, the lender can take ownership of the asset to cover the cost of the loan. As this reduces the risk for the lender, you will generally receive a lower interest rate.
- Unsecured business loan. Unlike a secured loan, you do not need to use an asset as security with an unsecured business loan. However, this means you will likely receive a higher rate than if you were to offer security.
What to keep in mind when comparing low rate business loans
When you're thinking about getting a business loan, it's important to compare more than just the rate. While the interest rate will help determine the size of your loan repayments, it's actually the comparison rate that will give you the true cost of the loan.
The comparison rate factors in any additional fees or charges attached to the loan, and is therefore a more accurate indicator of the size of your repayments. While a certain business loan may have a lower base rate, it may also come with higher fees or restrictive loan terms, meaning it will cost you more over the life of the loan.
When comparing business loans, you should also consider the loan term and any additional features as these will impact how you repay the loan. It's important to ensure that a particular loan will not have an adverse effect on your business operations or cash flow, and that you are in a realistic position to repay the loan on time.
What are my other options?
- Business line of credit. A business line of credit gives you access to an agreed credit limit that your business can draw on as and when it needs to. Unlike a regular business loan, you only repay the amount you use, but you are likely to get a higher interest rate than a regular business loan.
- Invoice finance. If your business is waiting on outstanding invoices to be paid, you can get them financed up front in return for a small fee. The fee is generally 2-5% of the value of the invoice, which means invoice financing can cost less than even a low rate business loan. You will generally receive up to 90% of the value of the invoice upfront, with the remaining amount paid out once the invoice itself has been paid.
- Loans up to $300,000
- Same-day turnaround
- Repay early without penalty
100% confidential application
Prospa Business Loan
Get access to a small business loan from $5,000 - $300,000 with a limited time 6 week repayment pause and the chance to win $6,000 if your loan is settled before 31 December 2019. T&Cs apply, click "go to site" to view on Prospa site.
- Loan Security: No asset security required to access funds up to $100,000
- Interest rate: from 9.9% p.a. to 26.5% p.a.
- Comparison rate: from 11.75% p.a. to 33.5% p.a.
- Establishment fee: 3% origination fee
- Minimum loan amount: $5,000
- Maximum loan amount: $300,000
Low rate business loan comparison table
Updated December 15th, 2019
Picture: Getty Images