What is a Good Interest Rate for Small Businesses

A low interest rate is good for a small businesses because payment are lower, more manageable and affordable. Interest rates vary depending on market fluctuations, business conditions and the business itself. Therefore, it is important to review how a small business can qualify for a low rate.

Factors in Receiving a Good Interest Rate

An excellent rate will be offered to companies depending on both the credit rating and the financial ability of the business. These factors are weighed by lenders and are used to determine the qualification of a small business for a loan. Qualifying for the best rate depends on the small business’s ability to demonstrate their credit worthiness and whether they are profitable enough to pay back the loan as promised.  A small business that has any past negative credit history will not qualify for as good a rate as one that has a perfect credit record.

Concerns with New Small Businesses

Small businesses that are just starting out will find it even more difficult to qualify for a good interest rate than those that are more established. Even when the small business has a good credit rating, the amount of time that the business has existed may be detrimental. This is because it is difficult for a newer small business to demonstrate their ability to generate profits since they do not have a proven track record. A lender will offer higher rates because of the level of risk associated with a high potential of default.

Ways to Lower Interest Rates

A small business may look for a guarantor or security for a loan as a way to lower their interest and qualify for a better rate. This can help instill more confidence in a lender by using the good credit rating of a guarantor or co-signer to lower the interest rate for the small business. Using collateral, or security such as equipment, cash or other assets of the business may also provide the protection against loan default that a lender seek in order to provide a good interest rate for the small business.