The interest rate of your business loan can significantly impact how much you have to pay each month to your lender. To maximize your profitability, it is important to search for business loans with low interest rates. But where can you find these loans? How do you qualify for them? There are several low-interest business loans available, but you need to know where to look. Here’s an overview of business loans with low interest rates and how to get one for your business.
Where To Find Business Loans With Low Interest Rates
To get a business loan with a low interest rate, you’ll need to connect with the right lender and meet their eligibility requirements. You’ll need to explore loans offered by a variety of types of lenders and look into ways to improve your creditworthiness to maximize your chances of getting the lowest interest rate possible.
The types of lenders that may offer low interest rates include online lenders, banks, credit unions, Community Development Financial Institutions (CFDIs), Minority Depository Institutions (MDIs), and Small Business Administration (SBA) lenders.
Credit Unions and Banks
Though the process of applying for a business loan through a traditional bank or credit union may seem slow, there are many banks and credit unions that offer competitive interest rates. It is therefore beneficial to consider this path to business financing. It could be an advantage if you’re already a customer at a certain institution.
Online Lenders
Applying for a business loan through an online lender can be one of the fastest ways to obtain funding. While some online lenders have high interest rates, others can be quite competitive. Prospective borrowers should therefore take their time to research and compare their options.
Community Development Financial Institutions (CFDIs)
Community Development Financial Institutions (CFDIs) are organizations that help underserved communities obtain financing. These entities are backed by the United States Department of the Treasury. If you’re looking for a business loan with low interest rates, a local CFDI can be a great place to start your search.
Minority Depository Institutions (MDIs)
Minority Depository Institutions (MDIs) are federally-insured credit unions that serve minorities. These institutions can be a great place to look for low-interest business loans, as well as free financial education and other resources, if you’re eligible.
Small Business Administration (SBA) Lenders
To help more people access business financing, the Small Business Administration (SBA) insures a large percentage of business loans that are offered by participating lenders. These lenders include credit unions, traditional banks, CDFIs, and MDIs. The process of applying for an SBA loan can be lengthy, but borrowers with limited credit and revenue can benefit from the competitive interest rates and lower barriers to entry that the SBA offers.
Improving Your Credit for Low Interest Business Loans
When you apply for a business loan, the lender will evaluate your creditworthiness to determine what types of terms and conditions you may qualify for. Borrowers with excellent credit history have greater chances of getting a business loan with a low interest rate. If you do not yet have stellar personal or business credit, you should consider taking some steps to improve your creditworthiness and your chances at being approved for a business loan with low interest rates:
Make Sure Your Business is a Separate Legal Entity
To establish business credit–and lower the chances of having any financial problems of your business hurt your personal credit—it’s important to make sure your business is its own legal entity, such as an LLC (Limited Liability Company) or a corporation. Your business should also have its own bank accounts so that you can avoid intermingling your business and personal finances.
Build Credit History
If your business is new, it might not yet have credit history. You can start building business credit by applying for a business credit card and using it responsibly. Keep your credit utilization low and make sure you pay off the balance by each due date. You should also continue paying all your bills on time. By managing your business finances responsibly, you can increase your chances of getting approved for a business loan with a low interest rate.
Check Your Credit Score and Review Your Credit Report For Errors
Check your credit score with credit reporting agencies such as Experian, Equifax, and TransUnion. If your business is already established, you can also check your business credit through agencies such as Dun & Bradstreet (D&B). Review your credit report carefully to see if it contains inaccurate information that is lowering your score. You should also check to see if any positive information that could help your score is missing.
Work with the credit reporting agencies, your financial institutions, and providers to correct your credit report. This can be one of the quickest ways to increase your credit score and become eligible for loans with better terms.
Ask Suppliers to Report On-Time Payments to Credit Agencies
If you’re consistently paying your vendors on time, ask if they can report these payments to credit agencies. Positive information–such as timely payments–can improve your credit score and credit worthiness, enabling you to qualify for business loans with low interest rates.
Manage Your Credit Utilization
Avoid maxing out your credit cards. It’s important to minimize the amount of available credit that you use. You should also avoid carrying balances over to the next month–it’s always best to pay off your credit card balance in full if you can. If you consistently carry balances to the next month and regularly max out your credit cards, lenders may be more likely to see you as a risky borrower.
Types of Business Loans That May Have Low Interest Rates
Financial institutions offer a variety of types of business financing. Here are some types of business loans that may offer low interest rates, depending on your lender and creditworthiness.
Term Loans
A term loan is usually the first thing that comes to mind when you think of a loan. With this type of loan, the lender sends you a sum of money that you must repay with interest over the course of a certain period of time. Repayment times can range from a few months to several years.
Business Lines of Credit
Many people consider business lines of credit to be more flexible than term loans. With a business line of credit, there’s a specific amount of money from which you can withdraw whenever you need to borrow capital. You only pay interest on the amount you borrow. This means that if you choose to never utilize your line of credit, you don’t pay any interest.
SBA Loans
The SBA backs a variety of loans. Lenders who partner with the SBA offer these loan products. Since these loans are insured by the SBA and therefore offer a greater sense of security to lenders, they may have lower interest rates compared to other types of loans.
Microloans
Many lenders consider loans to be “microloans” if their amount is less than $50,000. Since these small amounts pose fewer risks for lenders, and many of these loans are backed by institutions such as the SBA, they may have lower interest rates.
Equipment Loans
If you receive an equipment loan, you must use it to purchase assets for running your business. You will generally be required to use the assets you purchase as collateral for this loan to minimize the risk for the lender. Because of this collateral, equipment loans may have competitive interest rates compared to loans that don’t require collateral.
How To Apply for a Low Interest Business Loan
To apply for a business loan with low interest, you’ll first need to prepare documentation that demonstrates your creditworthiness. Documents that show how long you’ve been in business, how profitable you are, and how profitable you may be in the future will help you qualify for better loan terms.
The next step is to research and compare lenders. Ask lenders if they can prequalify you without impacting your credit score. Next, you can choose the loan that works best for you and apply. Work closely with the lender to make sure you’re providing all the necessary information in a timely manner, as some loans have a lengthy application timeline.
We Can Help You Get Business Loans With Low Interest Rates
At BusinessLoans.com, we are committed to helping you obtain the financing you need for your business. Our proprietary technology quickly reviews your business information and matches you with the right lenders. No matter where you are in your business journey, we are here to help. If you’re looking for business loans with low interest, answer a few questions for us and we’ll help you connect with the best lenders for your needs.