Business Loan Interest Rates: What to Expect in 2026

Business loan interest rates in 2026 vary widely depending on the type of financing, your creditworthiness, and where you borrow. 

Bank loans and SBA financing typically range from 7% to 13% APR for well-qualified borrowers. Online lenders charge anywhere from 15% to 50% or higher. Merchant cash advances don't use traditional interest rates at all. 

They use factor rates, usually between 1.1 and 1.5, which translate to effective APRs that can exceed 50%. 

The rate you'll actually pay depends on your specific situation, but knowing these ranges gives you a realistic starting point.

Why Business Loan Rates Vary So Much

Walk into three different lenders and you might get three wildly different rate quotes. That's not a bug. It's how the market works.

Lenders price risk. A bank offering 9% APR to a business with ten years of history, perfect credit, and collateral is taking a very different risk than an online lender offering 35% to a business that launched eight months ago with a 580 credit score. Both loans might make sense for the borrower. But the math behind them is completely different.

According to the Federal Reserve's most recent data, the average interest rate on commercial and industrial loans was around 7.5% to 8% for larger loans at major banks. But that average hides enormous variation. Small business loans, especially those under $100,000, typically carry rates several percentage points higher. And once you move outside traditional banks, the range expands dramatically.

The point isn't that high rates are bad and low rates are good. The point is that rates reflect risk, speed, and accessibility. Understanding what drives your rate helps you find the right balance for your situation.

Average Interest Rates by Loan Type

Different loan products come with different rate structures. Here's what you can realistically expect in 2026.

Bank Term Loans

Traditional bank loans remain the cheapest option for businesses that can qualify. Rates typically fall between 7% and 12% APR, though the best-qualified borrowers might see rates below 7%.

The catch? Banks are picky. They want strong credit scores (usually 680+), at least two years in business, solid financials, and often collateral. 

The application process takes weeks, sometimes months. If you've got the profile and the patience, bank rates are hard to beat. If you don't, you're probably looking elsewhere.

SBA Loans

SBA loans come with rates that are capped by the government, which keeps them reasonable. As of late 2025, SBA 7(a) loan rates max out at the prime rate plus 2.25% to 2.75% for most loans, putting them roughly in the 10% to 13% range depending on loan size and term.

These are some of the best rates available for small business loans, especially for larger amounts or longer repayment periods. The tradeoff is time and paperwork. SBA loans can take 30 to 90 days to close. They're great for planned investments. Not so great if you need money this week.

Online Term Loans

Online lenders have carved out a huge piece of the market by serving businesses that banks won't touch. Rates range from about 15% to 50% APR, with most falling somewhere in the 20% to 35% range.

Why so much higher than banks? Speed and accessibility. Online lenders approve applications in hours, not weeks. They work with lower credit scores, shorter time in business, and less documentation. You're paying for convenience and for the higher risk the lender is taking.

For a short-term loan, an online lender might be exactly the right choice even at a higher rate. If the alternative is missing a time-sensitive opportunity, the math can still work in your favor.

Business Lines of Credit

Rates on business lines of credit vary based on the lender and your qualifications. Bank lines of credit might start around 8% to 15%. Online lenders typically charge 15% to 35% or more.

The nice thing about lines of credit is that you only pay interest on what you actually draw. If you're approved for $100,000 but only use $20,000, you're only paying interest on the $20,000. That can make the effective cost much lower than it looks on paper, depending on how you use it.

For businesses that need flexibility, a line of credit often makes more sense than a term loan even if the stated rate is slightly higher. There's more detail on this in our guide to securing a business line of credit.

Merchant Cash Advances

MCAs don't technically charge interest. Instead, they use factor rates, typically between 1.1 and 1.5. You multiply the amount you receive by the factor rate to get your total repayment.

Let's say you get a $50,000 advance with a 1.3 factor rate. You'll repay $65,000 total. Simple enough. But here's where it gets tricky: that $15,000 cost looks very different depending on how quickly you repay.

If you pay it back over 12 months, the effective APR works out to roughly 50% to 60%. Pay it back in 6 months and the effective APR doubles. MCAs can make sense for businesses that need fast funding and have strong sales, but you need to understand what you're actually paying.

Invoice Factoring

Invoice factoring fees typically run 1% to 5% of the invoice value per month. That might sound low, but it adds up. If you're factoring invoices for 60 days at 3% per month, you're paying 6% to access money you've already earned.

Whether that's a good deal depends on your situation. If you've got $200,000 in receivables and can't make payroll without accelerating collections, factoring might be cheaper than the alternatives. We've covered this in more depth in our piece on how invoice factoring works.

Factors That Affect Your Interest Rate

The rates above are ranges. Where you land within those ranges depends on several things.

Credit Score Impact

This one's obvious but worth stating clearly. Higher credit scores get lower rates. A business owner with a 750 credit score will see significantly better offers than someone with a 600.

The effect is more pronounced with traditional lenders. Banks might reject you outright below certain thresholds. Online lenders will still work with lower scores, but they'll charge for the added risk. Every 50-point improvement in your credit score can meaningfully change your rate.

Time in Business

Lenders love track record. A business that's been operating profitably for five years is a known quantity. A business that launched last year is still proving itself.

Newer businesses pay higher rates because they're riskier. As your business ages and you build a history of successful borrowing, rates tend to improve. If you're just starting out, focus on the loan options available to newer LLCs and understand that rates will get better with time.

Revenue and Cash Flow

Strong, consistent revenue gives lenders confidence you can handle payments. They'll look at your monthly deposits, your profit margins, and how stable your income is over time.

Businesses with higher revenue relative to the loan amount typically get better rates.

Collateral

Secured loans cost less than unsecured loans. Putting up equipment, real estate, or other assets as collateral reduces the lender's risk, and they pass some of that savings on to you.

Not everyone wants to pledge collateral, and that's fine. Unsecured business funding options exist. Just understand that you'll pay a premium for not putting assets on the line.

Loan Amount and Term

Larger loans often come with lower rates because the fixed costs of underwriting get spread across more dollars. A $500,000 loan might carry a lower rate than a $50,000 loan from the same lender.

Longer terms can go either way. Sometimes longer terms mean lower rates because the lender earns more total interest. Sometimes they mean higher rates because the lender is taking risk over a longer period. It depends on the product and the lender.

Fixed vs Variable Interest Rates

You'll encounter both, and the choice matters.

Fixed rates stay the same for the life of the loan. Your payment never changes. This makes budgeting easy and protects you if rates rise. Most term loans from online lenders have fixed rates.

Variable rates fluctuate based on a benchmark, usually the prime rate. When the prime rate goes up, your rate goes up. When it drops, you benefit. SBA loans and many bank products use variable rates.

In a rising rate environment, fixed rates provide certainty. In a falling rate environment, variable rates can save money. Nobody knows for sure where rates are headed, so the "right" choice depends partly on your risk tolerance and partly on what products are available for your situation.

Understanding APR vs Factor Rates

This trips up a lot of business owners, and it can cost you money if you're not careful.

APR (Annual Percentage Rate) is what most people think of as an interest rate. It represents the yearly cost of borrowing, including fees, expressed as a percentage. APR lets you compare different loans on an apples-to-apples basis.

Factor rates work differently. A factor rate of 1.2 means you'll repay 1.2 times whatever you borrowed. Borrow $100,000, repay $120,000. The total cost is fixed from day one.

Here's why this matters: factor rates don't account for time. If you repay that $100,000 loan in 12 months, the $20,000 cost represents an APR of roughly 40%. Repay it in 6 months and you're looking at closer to 80% APR. The faster you pay, the higher the effective rate.

When comparing offers, convert everything to APR if you can. Some lenders make this easy. Others don't, which is sometimes intentional. If a lender won't tell you the APR equivalent of their factor rate, that's worth noting.

How to Get the Best Rate on Your Business Loan

You're not powerless here. Several things are within your control.

Improve your credit before applying. Even a few months of on-time payments and paying down balances can bump your score enough to matter. Check your credit report for errors and dispute anything inaccurate.

Shop around. Rates vary significantly between lenders. Getting quotes from three or four sources gives you leverage and context. Just be mindful of hard credit inquiries if you're applying broadly.

Consider the total cost, not just the rate. A loan with a lower rate but higher fees might cost more overall. Look at the total amount you'll repay, not just the percentage.

Offer collateral if you can. Secured loans come with lower rates. If you have equipment or receivables you can pledge, it might be worth it.

Borrow an appropriate amount. Asking for more than your revenue can support makes you look risky. Lenders respond with higher rates or rejections.

Build a relationship. Existing customers often get better terms. If you've successfully repaid a loan with a lender, they may offer better rates on subsequent borrowing.

2026 Interest Rate Outlook

Predicting rates is a fool's errand, but we can look at the factors in play.

The Federal Reserve's decisions on benchmark rates will continue to influence business loan pricing. If inflation stays under control and the Fed continues easing, rates could drift lower through 2026. If inflation picks back up, rates might hold steady or rise.

Beyond Fed policy, competition among lenders matters. The online lending space has gotten crowded, which tends to push rates down as lenders compete for borrowers. At the same time, if economic conditions tighten and defaults rise, lenders get more cautious and rates go up.

The most practical advice? Focus on what you can control. Your credit score, your financials, your choice of lender. Market rates will do what they do. Your job is to position yourself to get the best rate available in whatever environment exists when you need to borrow.

Frequently Asked Questions

What is a good interest rate for a business loan?

It depends on the loan type and your qualifications. For bank loans and SBA financing, anything under 10% is solid. For online lenders, 15% to 25% is reasonable for borrowers with decent credit. What's "good" for you depends on what you qualify for and what alternatives exist.

Why are business loan rates higher than mortgage rates?

Business loans carry more risk than mortgages. A mortgage is secured by real estate that retains value. A business loan is often unsecured or backed by assets that are harder to liquidate. Higher risk means higher rates.

How do I calculate the APR on a merchant cash advance?

Take the total repayment amount, subtract the original advance, divide by the advance amount, then annualize based on your expected repayment period. For example: $65,000 repayment on a $50,000 advance over 6 months equals $15,000 cost, or 30% over 6 months, which annualizes to roughly 60% APR.

Can I negotiate business loan interest rates?

Sometimes. Banks and SBA lenders have more flexibility than online lenders using automated pricing. Having competing offers gives you leverage. Strong financials help. It doesn't hurt to ask, but don't expect dramatic changes.

Do business loan rates change after approval?

For fixed-rate loans, no. Your rate is locked when you sign. For variable-rate loans, yes. Your rate will move with the underlying benchmark, usually the prime rate. Make sure you understand which type you're getting.

What credit score do I need for the best business loan rates?

For the best rates at traditional banks, aim for 720 or higher. SBA loans typically want 680+. Online lenders work with lower scores but charge accordingly. The higher your score, the better your rate options.