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As a business owner, you want to get the most out of your money. When it comes to borrowing, you want to guarantee you're getting the best possible rate on your loan. But what are the variables? And how do you get approved at the best rate?

While the interest rate on a business loan is important, it's one of many factors to consider when choosing a loan. In this blog post, we'll look at business loan rates and how they work so that you can make the most suitable choice for your business.



Interest Rates on a Business Loan

Business loan rates are the price for borrowing money to finance a business. The rate is reflected as a percentage of the total loan amount. Business loans are available at differing interest rates; the rate you can get depends on many variables. However, while taking out a business loan, you should remember that the interest rate depends upon the repayment term and any available collateral.


understanding business loan rates

Your interest rate is a percentage of your total loan amount.



Types of Business Loan Rates

The two main types of business loan rates are fixed and variable.

A fixed rate is a set interest rate that will not change over the life of the loan. You can work out the interest you'll pay, and it will stay the same as you pay off the loan.

A variable (or floating) rate may start lower than a fixed rate but can rise or fall during the life of the loan, depending on market conditions. For example, the Bank of England may change interest rates across the UK, so the lender puts your individual interest rate in line with it.

There are also hybrid rates - a combination of fixed and variable rates. This type of loan protects borrowers against rising interest rates but allows them to take advantage of lower rates if they occur.

Love Finance business loans are always fixed - the rate you pay will not change.



What Affects General Interest Rates?

The availability of capital, inflation and the strength of the economy are all determining factors affecting business loan rates. When the economy is strong, businesses are more likely to expand and need loans to finance their growth, leading to higher interest rates. When more capital is available for lending, interest rates will be lower. Inflation can also impact interest rates, as lenders may raise rates to keep up with the rising cost of goods and services. You can read more about interest rates on the Bank of England website.


business loan rates

The rate of inflation in the UK may affect the interest rate you're able to get on a business loan.



What Determines Business Loan Rates?

The type of business

Lenders typically charge higher rates for loans for businesses they see as higher risk, such as start-ups. Similarly, they will charge real estate investments at higher rates than other business loans.


Size of the business

Size is another factor that affects business loan rates. Generally, the larger the loan, the higher the rate will be, as lenders view large loans as riskier than smaller ones.


Your creditworthiness

Interest rates generally reflect how trustworthy the lender thinks you are. Borrowers with strong credit histories and solid financials will usually qualify for lower rates than those with weaker credit profiles. If you have bad credit or past mispayments, they may charge you a higher rate as lending is riskier. There are ways to improve your credit before applying for finance; read about that here.


business loan interest rate

Having a good credit score will make it easier to get a good rate on your loan.


Purpose of the finance

Lenders will also consider the purpose of the loan when setting rates. For example, they charge equipment loans at higher rates than working capital or business expansion loans


Each lender has its own policies for setting business loan rates. Some lenders may offer special programs or discounts to specific businesses, while others may charge higher rates for particular types of loans. It's important to assess offers from different lenders before selecting a loan. Borrowers can ensure they get the best possible rate on their loans by shopping around and comparing offers.



Business Loan Terms

In addition to the rate, lenders have different terms, affecting the overall borrowing cost. The term is the length of time you have to repay the loan, ranging from a few months to several years. If you get a longer term, the lower the monthly payments will be, but the overall cost of the loan could be higher. Shorter terms usually have higher monthly payments, but they also have lower overall costs.



Interest Rate Vs APR

Business loans have two rates: the Annual Percentage Rate (APR) and the Interest Rate. The interest rate is the percentage of the loan the lender charges you for borrowing money. The APR is the interest rate with any additional fees or charges associated with the loan. This rate is generally higher than the interest rate because it holds all the fees associated with the loan. It's best to understand both figures before signing any paperwork to know precisely how much money you will pay back each month.


loan rates for business

Your business loan will include an annual percentage rate as well as your interest rate.



How to Get the Best Rates on a Business Loan

Consider your credit

As we mentioned, your credit score is one of the biggest factors lenders look at when considering you for a loan. If you have a strong credit score, you're more likely to qualify for lower interest rates. You can monitor your credit score with a service like Experian to see where you stand.


Shop around

It's important to research lenders to find the best deal rather than choosing the first one you see. Read over the loan agreement carefully to understand the terms and conditions associated with the loan. This will help you make sure you're getting the best deal possible from your lender. Lenders can offer you different things, so think about what is most important to you. You might need the funds fast, but a reasonable rate will work out better for you in the long run.

Alternatively, go with a broker such as Love Finance to minimise some of your work. We have an extensive panel of lenders and know each of their criteria and, thus, who will be the most appropriate for your funding request. You apply with us, we put your request to our panel and come back to you with their approval - or put it to another lender - all within a matter of hours.


Don't be afraid to negotiate

You should always aim to get the best possible deal on your loan, so you shouldn't be afraid to negotiate with lenders. Lenders are often willing to negotiate, so it's always worth asking - just don't take it too far. If your credit score is strong, use it to your advantage and try to get a lower interest rate.


business loan rates uk

Negotiating with the lender could potentially get you a better rate.


Consider using collateral

Putting up collateral can help you secure a lower interest rate on your loan because it shows the lender that you're willing to put something at risk. Collateral can be anything from property to equipment. 

However, some dangers come with this. If you default on the loan, the lender can seize the collateral. For this reason, Love Finance only offers unsecured loans with no need for collateral - we don't want to put you at risk. 


Make prompt payments

Lenders want to see that you are dependable, and making prompt payments is a mutually beneficial way to show them that. Getting a lower interest rate will be more complicated if you have a history of late or missed payments. Some business loans come with prepayment penalties, meaning you'll be charged a fee if you pay the loan early.

We never charge early repayment fees at Love Finance, which could save you on interest payments as you only pay for the term you had the loan.


Prepare a business plan

When applying for a business loan, the lender may want to see a business plan. This helps them understand your business and what you plan on using the loan for. A well-written business plan shows that you're serious about your business and that you have a robust plan for how you will use the loan.

We don't require a formal business plan at Love Finance, but knowing your numbers helps the whole process. 


business loan interest rates

Preparing a business plan can help both you and the lender find the best option.



Business Loan Interest Calculator

Use our business loan rate calculator to determine what type of repayments you'll be making on your loan. You can modify it to how much you want to borrow, and over how long, and see how much this will cost you.






Business loan rates can vary depending on a number of factors. It helps to look around and compare rates from different lenders before you choose one - or use a broker. You could also try negotiating for a lower interest rate and consider using collateral to secure a better deal. Making prompt payments and having a solid business plan can also help you get the best possible rates on a business loan.

Love Finance is an award-winning business loans broker with an extensive panel of UK lenders. We're here to help you compare rates and find the best deal possible on a business loan. Our team is experienced in finding funding for businesses of all types and sizes, so we're confident we can help you too.



Submit your funding enquiry today, and one of our account managers can provide you with professional help throughout the process while finding you the best deal for your business.



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