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5 Common Factors that Affect Small Business Loan Rates


It doesn't matter whether you are just starting out as a small business owner or if you have been running your own small business for awhile, you need to know what things will affect small business loan rates. Even if you have been a business owner for awhile and haven't needed to worry about taking a loan, you never know when the need for a business loan may come up. If you are just starting your business, you may need to take a loan for start up expenses.

1. Business Plan

One thing you may not even think would affect a small business loan rate is a business plan. However, the lack of a solid and comprehensive business plan may make the world of difference when you apply for a loan, particularly if you are a new business. A business plan shows that you are serious about starting and maintaining a business venture and seeing a future with growth. A business plan also gives financial institutions a good indication of whether they are making a wise investment.

2. Type of Business

Another common factor that may affect your small business loan rate is the type of business you intend the loan to cover. There are some business ventures that are more risky than others, such as Internet start-up businesses, and warrant a larger loan rate. This is particularly true if you are applying for the loan for a new business rather than an already established business.

3. Personal Credit History

Unfortunately, if you are just starting a new small business and have a poor credit history or over-all credit rating score, it will negatively affect your small business loan rate. In fact, you may have a hard time qualifying for a small business loan at all, or be expected to use personal assets for collateral.

4. Length of Time in Business

The length of time you have been in business does have an affect on small business loan rates. Generally speaking, those whose businesses survive beyond the three year mark have a better chance of qualifying for a decent business loan rate. Lenders are reluctant to sponsor loans at decent rates to those who are just starting a new business or who have never owned and operated a business before.

5. Your Business Structure

Another factor that may determine the rate of your small business loan is how your business is legally structured. For instance, a small business that is established as a sole proprietorship may not qualify for a decent loan rate whereas a business that is structured as a incorporated may, depending upon other factors too.

There are other considerations that determine and affect the rates of small business loans as well. For instance, the over-all fiscal climate of the government can sway loan rates just as much as whether or not you carry business insurance. It's best to do considerable research before applying for and accepting a small business loan. Sometimes, the best route is through the Small Business Association; other times, it's best to go through a lending institution that you have personally established a relationship with.

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