Insights into the world of small business lending and development

What Are Interest Rates For Affordable Small Business Loans?

This post originally appeared on the blog of our partner, CDC Small Business Finance.

If you’re on the hunt for a small business loan, how much you’ll pay in interest for affordable financing depends on several financial moving parts, from your credit score to the type of lender you work with.

Instead of going to a traditional bank, you can opt to get a business loan through a community-based lender where loan requirements are not as strict and rates are affordable. Interest rates vary from community lender to community lender. At CDC Small Business Finance, as of May 2019, expect rates to generally start at 8.25% and go even lower in very specific cases.

Here’s a breakdown of the loan programs we offer in California, Nevada and Arizona, and the general rates to expect:

WHAT ARE INTEREST RATES FOR SBA BUSINESS LOANS?

As a community lender, CDC Small Business Finance provides SBA business loans — a reliable, low-cost option to finance your business. These loans are generally easier to qualify for due to the fact the loan is guaranteed by the U.S. Small Business Administration. And rates are reasonable.

The SBA small business products we offer are:

  • SBA Community Advantage Loans: New or existing business owners can take out up to $250,000 to use as working capital or to buy a business.
    Rate: 8.25%-11.50% (based on May 30, 2019 rates)
  • SBA Microloans: Loans capped at $50,000 to help small businesses launch and grow. It’s ideal for small business owners seeking a smaller loan. (We only offer this product in California.)
    Rate: About 9% (based on May 30, 2019 rates)

SBA loan interest rates are tied to prime, short for the U.S. federal prime rate, said Susan Lamping, head of sales at CDC Small Business Finance. Prime is a commonly used benchmark rate used by banks.

While U.S. interest rates have trended up in recent years, the Federal Reserve in early May 2019 kept rates unchanged.

ARE THERE SPECIAL LOAN PROGRAMS FOR MINORITY BUSINESS OWNERS?

Through Small Business Finance Fund, which is run by a CDC affiliate, the answer is yes. This fund was designed to specifically help Latino or African American entrepreneurs with affordable financing. The pre-qualification process is significantly more flexible compared to that of a traditional bank. Qualifications include no minimum credit score and 1 year’s business history.

Rate: 9.75%-10.25% (based on May 30, 2019 rates)

ARE YOU A BUSINESS OWNER IN THE CITY OF SAN DIEGO?

CDC Small Business Finance, who has a 40 year track record as a lender, has partnered with San Diego city officials to expand access to capital to underserved pockets of the city. The program is available to business owners in four key areas: City Heights, Logan Heights, San Ysidro, and the Diamond District, which includes Oak Park, Mount Hope, North and South Encanto. Loans, which range from $50,000 to $300,000, come with a below-market interest rate.  

Rate: 5%. (To see if you qualify, check out this article.)

HOW DO I QUALIFY FOR A SMALL BUSINESS LOAN?

Before shopping for a small business loan and interest rates, make sure you meet the minimum requirements for the program you are targeting. They vary by program and lender.

Generally speaking, the five main things a lender — be it a bank or community lender — will consider in your application include: personal credit, cash flow, capital, character and potentially collateral. (Here’s a detailed breakdown of those factors and why they’re so important.)

Other important considerations include: time in business, business credit and your industry’s risk level, said Lamping.

Should you qualify for a business loan, these factors combined help lenders assess how reliable you are when it comes to repaying debt. What does that mean for you? They help determine your interest rate. The better your financials, the lower your interest rate will be.

One of the most important numbers lenders will home in on is your credit score, which you can actually improve through some easy-to-follow tips. (Explore our video series on ways you can improve your credit score.)

WHAT IF I WANT TO BUY A COMMERCIAL PROPERTY?

Community lenders like CDC also provide financing to small business owners to purchase owner-occupied commercial real estate. One popular option is the SBA 504 loan. This is long-term, fixed rate financing that can be used to purchase real estate, land or major equipment. As of May 2019, you can enjoy sub-5% interest rates on long-term real estate loans through the SBA 504 program. Check here for the most current rates

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