Owning a small business can be stressful, to say the least. Applying for a small business loan doesn't have to be stressful at all, though. And understanding how to get a low-interest business loan can bring relief to your company in just a few hours.

What Is a Small Business Loan?

A small business loan is financing sought by a company's owner to start a new small business, purchase an existing small business, or infuse the current company with cash for various reasons (such as improvements or expansion).

It's good for borrowers to have an understanding of how small business loans work before applying. Business owners should also understand that there are typically two types of small business loans: low-interest and low-cost loans.

Let's look at the difference between the two.

Low-Interest Loans vs. Low-Cost Loans

The lowest business loans typically have longer terms and lower interest rates. Therefore, low-rate business loans may be more affordable and attractive to small business owners, but they are usually more expensive in the long run.

Low-cost loans have higher interest rates and shorter loan terms, making it harder for borrowers to quickly repay the loan. However, this may be a good option if you need a merchant cash advance type loan.

The main difference between low-interest and low-cost loans is the total amount that business owners repay over the loan's lifetime. 

How to Get a Start-Up Business Loan or a Small Business Loan

If you are looking for the best small business loans for start-ups or expanding your company, here are some options for your consideration.

SBA Loan

SBA Loans originate from the Small Business Administration department of the federal government. And although it's a government-backed loan, business owners don't need to work directly with the government to apply for or receive financing.

Rok Financial can help companies apply for and receive an SBA Loan, to which there are many benefits.

There are several types of SBA loans, each with various requirements and benefits. The two most common government small business loans are the Standard 7(a) loan and SBA Disaster Loan.

Standard 7(a)

With the standard 7(a) loan, business owners can apply for working capital up to $5 million and pay as little as 0.25% in loan fees. It's also common to get a loan with a 3-7% interest rate. You won't need any collateral for financing less than $25,000, and borrowers can typically get SBA approval within ten business days. 

SBA Disaster Loan

Many people needed a 2020 low-interest business loan in the COVID-19 epidemic. Along with the CARES Act, the SBA provided small business loans during COVID-19, including the Payroll Protection Plan Loans and Economic Injury Disaster Loans. Some of these options are no-interest business loans.

An SBA Disaster Loan is a low-interest loan for small businesses, renters, homeowners, and non-profit organizations in a federally declared disaster zone or state of emergency. Depending on the type of disaster loan you qualify for, you can receive between $200,000 to $2 million.

Traditional Bank Business Loan

Many business owners can work with their neighborhood bank for a low-interest long-term business loan. It's the most traditional type of financing option, with borrowers receiving a lump sum of money to be repaid over several months/years with interest.

Business owners who borrow from a traditional bank typically see interest rates between 2.55% and 5.4%. However, small business bank loans are usually much harder to qualify for, with qualifications including an excellent credit report and proof of an established and profitable business.

Loan terms vary depending on the specific lender and the borrower's eligibility.

Medium-Term Business Loan

A medium-term business loan splits the difference between low-interest and low-cost loans. Their loan terms typically have a repayment period between one to five years and are usually more affordable than other small business loan options. Even though medium-term loans are easier to qualify for than other loans, the interest rates are generally in the 20% range. 

Qualifications for a medium-term business loan usually include proof of one year in business, a credit score higher than 600, and a minimum of $90,000 annual revenue. Business owners who prefer medium-term loans can usually work with banks, credit unions, or online lenders for this type of financing.

Business Lines of Credit

A business line of credit is an excellent option for business owners who need more flexibility in their financing. A line of credit works very similarly to a credit card, except with higher limits and better interest rates. But you don't get an actual physical card.

Business owners who are approved for a line of credit can keep the money in reserve - interest-free - until it's needed. Once you draw money out, then you pay interest on the amount withdrawn. The benefits of a business line of credit include accessing the funds when you need it, however much you need (as long as it's within the approved limit).

Those looking to receive a business line of credit can work with the SBA, a traditional loan, or even online lenders for this financing option.

What Factors Decide Your SBA Loan Interest Rate

When considering how to get a low-interest business loan, Rok Financial recommends an SBA loan. Although they are not the easiest loan to qualify for, the loan terms are favorable for business owners who meet the qualifications.

So what decides a borrower's eligibility for an SBA Loan? These factors include:

  • Proof of at least two years as a business
  • Credit score 620+
  • At least $100,000 in annual revenue

The Average Interest Rate for SBA (Small Business Administration) Loans

Once you qualify for an SBA loan, the following determination is how much you want to finance, the loan length, and if you get a fixed or variable rate.

Keeping these factors in mind, business owners may find the lowest small business loan rates as follows:

  • Loans $25,00 or less typically have an interest rate between 4.25-6%
  • Loans $25,000 to $50,000 usually have an interest rate between 3.25-6%
  • Loans $50,000 to $250,000 typically have an interest rate between 2.25-6%
  • Loans more than $250,000 generally have an interest rate between 2.25-5%

SBA Loan Credit Score Requirements

Most SBA Loans have a requirement of at least a 640 credit score. Business owners with credit scores of 680 and higher should have a better chance of being eligible for this government small business loan.

Online Applications for Interest Rate Inquiries

If you are interested in an SBA Loan with Rok Financial, apply today. A business financing advisor will contact you within 24-hours about your eligibility for low-interest business loan.

About the Author, Madison Taylor

Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates!Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.