How Much Does a Small Business Loan Cost?

If you’re thinking of taking out a small business loan, you’re probably wondering how much it’s going to cost you. Here’s a breakdown of the typical costs associated with a small business loan.

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How Much Does a Small Business Loan Cost?

The cost of a small business loan depends on a number of factors, including the size of the loan, the length of the loan, and the interest rate. The average interest rate for a small business loan is around 7%, but it can be as high as 30% for some loans. The size of the loan also affects the cost, with smaller loans costing less than larger loans.

Types of Small Business Loans

There are a wide variety of small business loans available to help businesses grow and expand. The type of loan you choose will depend on your needs and goals as a business owner. Here are some of the most common types of small business loans:

-SBA Loans: SBA loans are government-backed loans that offer long repayment terms and low interest rates. They are typically used for larger projects, such as expansion or renovation.

-Business Credit Cards: Business credit cards offer revolving lines of credit that can be used for short-term expenses. They typically have high interest rates, so they should be used with caution.

-Invoice Financing: Invoice financing is a type of short-term loan that allows businesses to borrow against outstanding invoices. This can be a helpful option for businesses that have customers with slow payment times.

-Term Loans: Term loans are traditional loans that typically have fixed interest rates and repayment terms of 2-5 years. They can be used for a variety of purposes, such as purchasing equipment or expanding your facilities.

Interest Rates

The average interest rate for a small business loan varies depending on the type of loan, the lender, the size of the loan, and other factors. But it generally ranges from about 6% to 13%, according to NerdWallet’s 2019 Small Business Loan Rates Report.

For loans with SBA guarantees, the interest rates are even lower. The maximum interest rate that lenders can charge for an SBA 7(a) loan is 6.75%. The maximum interest rate for an SBA 504 loan is 10.25%.

With all other things being equal, a longer loan term will have a higher interest rate than a shorter loan term. That’s because you’re paying interest for a longer period of time, so the lender can charge a higher rate.

Fees

When you take out a small business loan, you can expect to pay a variety of fees. These fees can add up, so it’s important to know what they are and how they will impact the cost of your loan.

The most common fee is the origination fee. This is a one-time fee charged by the lender to cover the cost of processing your loan. Origination fees can range from 1% to 10% of the total loan amount, with most loans falling somewhere in the 2% to 5% range.

Other common fees include collateral requirements, early repayment penalties, and application fees. Collateral requirements are typically only applicable if you’re taking out a secured loan, such as a business line of credit or equipment financing loan. Early repayment penalties may be charged if you pay off your loan ahead of schedule, while application fees are typically charged by online lenders.

When you’re shopping for a small business loan, be sure to ask about all of the potential fees so that you can compare apples to apples. The best way to avoid paying unnecessary fees is to work with a lender that’s transparent about their pricing and doesn’t charge any hidden fees.

How to Get a Small Business Loan

SBA Loans

The U.S. Small Business Administration (SBA) is a federal agency that provides assistance to small businesses through a variety of loan programs. The most common SBA loan program is the 7(a) loan program, which offers loans for working capital, equipment, and/or real estate purchases.

7(a) loans are the most popular type of SBA loan because they can be used for a wide variety of purposes, including expanding or starting a business. 7(a) loans are available in both secured and unsecured form, and can be used for terms up to 25 years. The maximum loan amount for a 7(a) loan is $5 million.

How much does a small business loan cost?
The cost of a small business loan depends on a number of factors, including the type of loan, the lender, the size of the loan, and the repayment schedule. Interest rates on small business loans can range from 5% to more than 20%, depending on these factors. In general, the longer the repayment period, the lower the interest rate will be.

To get an estimate of how much your small business loan will cost, you can use an online calculator or contact a lending officer at a bank or credit union that offers loans to small businesses.

Traditional Bank Loans

One popular way to finance a small business is through a traditional bank loan. Bank loans can be used for a variety of purposes, including equipment purchases, inventory financing, working capital, and more.

The cost of a bank loan will vary depending on the type of loan you get, the terms of the loan, and the size of the loan. Interest rates on bank loans are typically lower than those on other types of loans, such as credit cards or personal loans.

To qualify for a bank loan, you will usually need to have good credit and show that your business is profitable or has strong potential for profitability. The application process can be lengthy and competitive, so it’s important to be prepared before you apply.

If you’re looking for a small business loan, check out our guide to the best small business loans to find the right option for your business.

Online Lenders

Online lenders are a relatively new industry, but they have quickly become a popular option for small business owners who need access to capital. There are a few reasons for this: online lenders tend to have more flexible underwriting requirements, they can often provide funding more quickly than traditional banks, and they typically have lower interest rates.

Of course, there are some downsides to online lending as well. The biggest one is that you will likely have to put up some form of collateral, such as your home or another piece of property, in order to secure the loan. Additionally, online lenders may require you to have at least a year in business and some revenue coming in before they will lend to you.

If you’re thinking about taking out a small business loan from an online lender, be sure to shop around and compare rates before you commit to anything. And always read the fine print!

How to Compare Small Business Loans

Small business loans can come with a wide range of fees. Some loans have just a few fees, while others have many. It’s important to compare the fees when you’re shopping for a small business loan. That way, you can be sure you’re getting the best deal. In this article, we’ll discuss some of the fees you might see on a small business loan and how to compare them.

Interest Rates

Interest rates for small business loans can vary quite a bit, depending on the lender and the type of loan. For example, SBA loans typically have lower interest rates than alternative lenders. The best way to compare interest rates is to look at the Annual Percentage Rate (APR), which includes both the interest rate and any fees that are being charged.

Here are some average APRs for different types of small business loans:

Type of Loan Average APR
SBA 7(a) loan 6.75% – 9.75%
SBA 504 loan 4.00% – 5.00%
Alternative lender loan 8.00% – 99.00%
Online term loan 7.00% – 100.00%
Invoice financing 6.00% – 70.00%

Fees

When you’re considering a small business loan, one of the first things you should look at is the fees. Some fees are paid upfront, while others are paid over the life of the loan. The most common fees are:

-Application Fees: Many lenders charge an application fee to cover the cost of processing your loan. This fee is typically between $100 and $500.

-Origination Fees: An origination fee is charged by the lender for making the loan. This fee is typically a percentage of the total loan amount and can range from 1% to 5%.

-Closing Costs: closing costs are typically paid by the borrower at the time of closing and can include appraisal fees, title insurance, and legal fees.

-Prepayment penalties: Some lenders charge a penalty if you prepay your loan in full or make a large payment early on. This fee is typically a percentage of the outstanding loan balance or a flat fee.

Terms

Terms for small business loans can vary depending on the lender, type of loan, and your qualifications as a borrower. But in general, you can expect to see some combination of the following:

-Loan amount: The amount of money you borrow from the lender.
-Loan term: The length of time you have to repay the loan. This can be anywhere from a few months to a few years.
-Interest rate: The amount you will pay in interest on the loan. This can be a fixed rate or a variable rate.
– origination fee: A fee charged by the lender for processing the loan. This fee is typically a percentage of the loan amount and can range from 1% to 8%.
-Prepayment penalty: A fee charged by some lenders if you pay off your loan early.

How to Choose the Best Small Business Loan

There are a few things you need to take into account when you’re looking for a small business loan. The first is how much you need to borrow. The second is the interest rate. The third is the repayment schedule. And the fourth is the fees. We’ll go over all of these in more detail so you can make the best decision for your business.

Consider Your Needs

When you’re looking for a small business loan, it’s important to consider your needs and find a loan that suits your business. There are many different types of small business loans, each with its own set of benefits and drawbacks.

First, you need to decide how much money you need to borrow. This will help you narrow down your options and choose a loan that’s right for your business. If you need a large sum of money, you may want to consider a term loan. These loans can be used for a variety of purposes, including expanding your business, buying inventory, or hiring new staff. Term loans are typically repaid over a period of time (usually 1-5 years) and have fixed interest rates.

If you need a smaller amount of money and don’t want to take out a long-term loan, you may want to consider a line of credit. Lines of credit give you access to cash when you need it, up to your credit limit. You only pay interest on the amount of money you borrow, and you can typically withdraw funds as often as you need (up to your credit limit). Lines of credit usually have variable interest rates.

Another option is an SBA loan. These government-backed loans are available through participating lenders and can be used for a variety of purposes, including start-up costs, equipment purchases, or working capital. SBA loans typically have lower interest rates than other types of loans and longer repayment terms (up to 10 years).

Once you know how much money you need and what type of loan would best suit your needs, you can start shopping around for lenders. There are many different lenders offering small business loans, so it’s important to compare terms before choosing one. Some things to look for include the interest rate (fixed or variable), the repayment term (how long do you have to pay back the loan), and any fees or prepayment penalties associated with the loan

Compare Loan Options

There are many different types of small business loans available, each with its own set of terms, conditions, and costs. It can be difficult to know which loan is right for your business. The best way to find the right loan for your business is to compare your options and compare the costs.

Here are some things to consider when comparing loan options:
-The Interest Rate: The interest rate is the cost of borrowing money, and it can have a big impact on the total cost of your loan. Make sure to compare interest rates from multiple lenders before you choose a loan.
-The Loan Term: The loan term is the amount of time you have to repay your loan. Loan terms can vary from a few months to several years. A longer loan term will usually mean lower monthly payments, but it will also mean you end up paying more in interest over the life of the loan.
-The Repayment Schedule: The repayment schedule is the schedule of payments you will make on your loan. Some loans have fixed repayment schedules, where you make the same payment each month until the loan is paid off. Other loans have variable repayment schedules, where your payments may change based on factors like your sales or revenue. Make sure to ask about the repayment schedule before you choose a loan so you can be prepared for what you will need to pay each month.
-The Fees: There are often fees associated with taking out a small business loan. These fees can include origination fees, closing costs, and other miscellaneous fees. Be sure to ask about all of the fees associated with taking out a loan before you sign any paperwork.
-The Collateral: Some loans may require collateral, which is something of value that can be used to secure the loan in case you default on the payments. Collateral can include things like real estate, equipment, inventory, or even personal assets like a car or home equity line of credit. Make sure you understand what collateral is required for a loan before you apply so you can be prepared to offer it if necessary.

Read the Fine Print

When you’re considering a small business loan, it’s important to do your homework and choose the best option for your needs. There are a lot of factors to consider, including the type of loan, the interest rate, the repayment terms, and the fees.

You should always read the fine print before signing any loan agreement, but it’s especially important with a small business loan. Make sure you understand all of the terms and conditions, including the repayment schedule, late payment penalties, prepayment penalties, and any other fees.

It’s also important to compare offers from different lenders. Some lenders may offer lower interest rates, but they may also have higher fees or less flexible repayment terms. It’s important to compare all of these factors before choosing a loan.

Finally, remember that a small business loan is a serious commitment. Be sure you can afford the monthly payments before you take out a loan. If you can’t make the payments, you could put your business at risk.