The Best Low-Interest Business Loans and How to Qualify

If you’re in need of a low-interest small business loan, here are some of the top loan options to consider. 

Learn more about low-interest business loans and how to qualify in our guide below.

As you can see in the table above, there are several types of low-rate business loans available to small business owners: SBA loans, term loans, lines of credit, equipment financing and microloans. We’ll explain each below.

SBA Loans

SBA loans are low-interest loans for small businesses that are funded by an SBA-approved lender and partially guaranteed by the U.S. Small Business Administration. The SBA guarantees a large portion of the funds—anywhere from 50% to 90%, depending on the loan type—which ultimately allows them to offer some of 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, along with the required personal guarantee, removes much of the lender’s risk in lending to a small business. If, for example, you default on your loan, 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 larger, longer-term business loans. However, these desirable rates and terms mean SBA loans are highly competitive and difficult to qualify for. Typical SBA-qualified borrowers have at least two years of business history under their belt, a minimum credit score of 690, and substantial annual revenue.

Term Loans

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

Long-term loans typically have terms ranging anywhere from three to 10 years (and up to 25), while medium-term loans generally have repayment terms reaching up to five years.

Typically, banks will offer the most competitive interest rates—particularly if you have an established relationship and history with the bank—but they rarely disclose their rates publicly, which makes it more challenging to shop and compare. In exchange for some of the lowest rates on the market, bank business loans are also some of the hardest to qualify for, with rigid requirements that include at least two years in business, high annual revenue minimums and credit scores of 680 or higher.

Many alternative lenders have also entered the marketplace and offer appealing options for term loans. While online, alternative lenders don’t offer business loans with the lowest interest rates on the market—banks and SBA lenders do—they can still be considered low-interest business loans, and they’re far more accessible and quick-to-fund than the lowest-interest business loans. 

Business Lines of Credit

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. It works a lot like a business credit card: You only pay interest on the funds you draw, and once you repay them, your credit line will return to its original limit.

You can get a business line of credit from a bank (if you are a highly qualified borrower), or an alternative lender (if you’re a slightly less qualified borrower). Lines of credit from alternative lenders come with smaller amounts, shorter repayment terms and slightly higher interest rates than what you’d get with a line of credit from a bank. The affordable, low-interest business loans in this arena of financing are typically options for borrowers with one year in business and a 625+ credit score.

A major appeal of a business line of credit is that it essentially sits in your business’s back pocket, interest-free until used—making it the only low-rate business loan available at a moment’s notice.

Equipment Financing

An equipment loan, or equipment financing, can be a great solution for a low-interest business loan specific to a large purchase of machinery or technology. Similar to a term loan, you receive a lump sum of capital that you pay back in regular installments, with interest, over an agreed-to period of time.

The equipment being purchased serves as the physical collateral on the loan, which allows lenders to feel more secure in their lending and therefore more flexible in their qualification requirements. Data based on past Fundera customers indicates that equipment financing companies typically accept borrowers with a minimum credit score of 600, more than $130,000 in annual revenue and over two years in business. Some lenders, however, including those we list at the start of this guide, have lower criteria.

Microloans

Microloans are lump sum business loans delivered in small amounts (typically up to $50,000) that you pay off, plus interest, over time. Because microloans are largely targeted to startups and traditionally overlooked businesses, such as those owned by women, minorities and veterans, they tend to come with more accessible qualifications. In exchange for competitive interest rates and more flexible requirements, however, microloans are offered in smaller amounts with shorter repayment terms than some of the other loan options listed above.

In addition to any necessary business documentation and collateral, if required, there are a few primary factors that determine whether or not a lender will offer you a low-interest business loan.

Personal Credit Score

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

Your credit score shows how reliable you’ve been with your personal debts in the past. From a lender’s perspective, 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.

Time in Business

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 startup business is a lot riskier for lenders to work with—approximately 20% of new businesses close within a year of opening, according to the Bureau of Labor Statistics. This means that it’s risky to lend to a young business due to the chance that it may not be around to repay its financing. 

On the other hand, a business that’s more established is more likely to qualify for low-interest business loans since it has proven it can handle its 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. 

Annual Revenue

This factor is pretty simple: The higher the revenue your business brings in on an annual basis, the higher the level of confidence a lender will have that your business finances can support repaying the loan. Typically, minimum annual revenue requirements fall within a range of $100,000 to $250,000.

1. Build Your Personal Credit

If your credit score precludes you from qualifying for a business loan with low interest, then take active steps to improve 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.

Explore our guide to startup loans with no credit check. 

2. Increase Time in Business

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 find that 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.

3. Be Prepared for an Emergency

Finally, one surefire way to avoid high-interest business loans is ensuring that you never wait until it’s an emergency to seek funding. 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.

If you’re currently unable to qualify for a low-interest business loan, you still have some funding options to explore:

• Business credit cards
• Small business grants
• Crowdfunding