About Commercial Loan Rates
There are multiple factors that impact the commercial loan rates your business can secure from lenders when asking a lender for capital/financing. We will discuss and list the factors that we have seen to have the most significant impact on commercial loan rates to help you get an understanding of what lenders use to determine commercial loan rates and how to keep yours as minimal as possible.
Leading Factors For Commercial Loan Rates
The business history you have with the lender you are asking for capital, has one of the biggest impacts on the commercial loan rates that you will be able to secure for your loan. However, prior to building a repertoire with a lender as being a reliable borrower (to get the lowest commercial loan rates), you will have to make sure your credit score is in a favorable range prior to applying. The minimum credit score that most lenders want to see from borrowers is 550, and ideally, you want it to be higher than 640 when asking to borrow business capital. Your FICO score significantly impacts commercial loan rates and can be broken down into your credit history, amount currently owed, length of history, and types of credit in use. Additionally, in order to achieve favorable commercial loan rates for your business, you will want to make sure you have accurate financial data ready for the lender to review in the loan application process. This includes balance sheet, profit/loss statement and tax returns for at least a year (preferably at least two years). Lastly, the debt service coverage ratio (DSCR), which is your business cash flows for the payment period/interest expense for payment period is important for commercial loan rates, as lenders look at what your current ratio is and what it will be if they decide to lend the capital. Maintaining a ratio of at least 2, will help keep your commercial loan rates down (the higher the better, with lenders looking for at least a 1.25). This should make you strive to ideally only borrowing an amount that keeps your leverage within the favorable DSCR ratio, in order to maintain favorable commercial loan rates.
Tips For Commercial Loan Rates
When being quoted commercial loan rates, you will want to make sure the figure given is APR, and not simply interest rate. APR, or annual percentage rate, includes all of the fees that lenders can charge, such as origination, and application fees. With these additional fees, the APR can come out to be significantly higher than just the interest rate on the loan, which is critical to understand when determining full commercial loan rates.
We have listed our top reviewed lenders with the most favorable commercial loan rates. We ranked lenders based on their lending flexibility in terms of offering capital at the lowest commercial loan rates possible.
Commercial loan rates will differ dramatically based on lender and borrower. Banks have different lending structures than direct lenders, who do not focus on a business owner’s credit, or FICO score. Banks usually prefer to give longer term loans than direct lenders, who focus on short term capital. Commercial loan rates vary because of these reasons. However, small business owners can expect commercial loan rates ranges between 8% to 15% from banks and as high as 45% for short term loans from direct lenders. However, you have to keep in mind, because the loans are long term with banks, the interest at the end of amortization will not be that different. Because even though the interest rate with bank loans is smaller, you will be paying the interest rate for a longer period of time.