What are the current interest rates for unsecured commercial loans?

Interest rates on unsecured commercial loans can range from 7 percent to 99 percent, depending on the type of loan chosen, the lender, and the company's credit profile. It is possible to get low interest rates on an unsecured commercial loan, in the range of 8-10%, if the company has good credit.

However, lenders generally offer higher rates for unsecured commercial loans than for secured loans because unsecured loans are not backed by collateral. These loans present a higher risk to lenders because they cannot immediately forfeit the company's assets to repay the loan in case of default.

Below are current interest rates for different unsecured commercial loans and items to consider when comparing loans.

Compare current interest rates on unsecured commercial loans.

Get an idea of interest rates depending on the type of unsecured loan and the lending institution.

Unsecured term loans

Some unsecured term loans have a small amount or short repayment period to offset the risk of not having any assets attached to the loan.

Since features vary from lender to lender, compare the rates and terms these lenders set for their term loans.

Unsecured business lines of credit

A business line of credit allows businesses to access funds as expenses increase. The lender sets a credit limit based on the company's ability to repay, and the company repays the amounts drawn within a specified period of time, such as one or two years.

Some banks set a lower maximum credit limit (e.g., US$100,000) for unsecured versus secured lines of credit. Consult offers from traditional banks and online lenders for this type of unsecured loan.

Business credit cards

Business credit cards are a viable option for small purchases and allow the business owner to earn rewards.

Borrowers with good or bad credit can find options to build their credit, although most unsecured business credit cards require a high credit score of 670 or higher.

Invoice factoring

Factoring is another type of business financing that does not require collateral because it is secured by the company's future invoices. Instead of interest, factoring companies charge a fee on the total amount of the outstanding invoice.

The fee structure may include a time window, such as if invoices are paid within 30 days, before the fee is increased or reassessed.

Merchant Cash Advances

Merchant Cash Advances (MCAs) allow your business to obtain financing based on future credit card sales. Most MCAs assess a factor rate instead of an interest rate, which is multiplied up front by the total amount borrowed.

MCAs are a type of high-risk loan that businesses resort to when they cannot obtain financing through a traditional commercial loan. In fact, approval rates for merchant cash advances are high, provided the business has sufficient sales volume.

Factors affecting unsecured commercial loan rates

The exact interest rates you will receive on an unsecured commercial loan are influenced by the following factors:

The lender

You are more likely to get lower interest rates from a traditional bank than from an online lender. However, underwriting may take longer, as the bank may need more time and documentation to verify that your business can repay the loan.

Also, traditional banks tend to work with businesses that have an excellent credit history, such as a score of 670 or higher.

Type of loan

Business dicredit lines and term loans offer some of the lowest rates available for unsecured loans, provided you have good credit.

If you opt for a business credit card, the initial rates are higher than some business loans. Credit card APRs may be lower or equivalent to other loans if you do not have perfect credit, especially if the card offers a 0% APR.

Credit score and payment history

The lowest rates are reserved for businesses with good credit, such as a 670+ score. In general, lenders have stricter requirements for unsecured loans than secured loans to ensure loan repayment.

Otherwise, you may have to opt for a business with bad credit loan, which carries higher rates and fees.

Income

The company's financial statements play an important role in the granting of any business loan, particularly an unsecured loan. Lenders will want to see adequate cash flow and low debt, such as a debt-to-income ratio of less than 36 percent.

Lenders may also use the debt service coverage ratio to determine the amount of revenue generated by the business in addition to debt repayments.

How do unsecured commercial loans compare?

Comparing unsecured commercial loans is similar to comparing commercial loans in general. However, some characteristics may be different for unsecured loans:

• The interest rate. If you apply for both a secured and an unsecured commercial loan, you will probably get lower interest rates on the secured loan. This is because the lender has a guarantee that some or all of the loan will be repaid, even if you default.
• Factor rate. Some unsecured loans charge factor rates instead of interest rates. These rates can lead to high loan costs because they are applied to risky types of loans and do not include additional loan costs. To compare the loan, you need to convert the factor rate to an interest rate.
• Loan amount. Some lenders reduce the maximum amount of unsecured loans compared to secured loans. This is especially the case with traditional banks.
• Repayment terms. Compare the length of installments, such as six months, and the repayment schedule. Some alternative or short-term loans, such as merchant cash advances, require daily or weekly repayments.
• Additional fees. Additional fees for business loans vary depending on the type of loan and the lending institution, so be sure to read the loan agreement to understand what you will have to pay. For example, some lenders charge a fee for reviewing the loan application. Business lines of credit may charge a withdrawal fee when you take money out of the line of credit.

Interest rates vary widely in the unsecured business loan market because there are different types of unsecured loans. In general, your company should qualify for a higher rate on this loan than if it borrowed the same amount but secured it with assets. When choosing a loan, you should consider the one that offers the best interest rates and terms based on your company's qualifications.

Frequently asked questions

Does a business loan appear on your personal credit file?

A commercial loan may affect your personal credit file, but not always. Many lenders perform a rigorous personal credit check when you apply for a business loan, especially if you do not have a long business credit history. Business loans can also affect your personal credit if you personally guarantee the loan, if you are a sole proprietor, or if you finance or secure the loan with personal assets.

Do small business loans carry high interest rates?

Not necessarily. Interest rates on small business loans are determined by the creditworthiness of the business. Small businesses with low revenue or no credit history will likely be subject to a higher rate than larger businesses with established revenue.

What is a good interest rate for an unsecured loan?

Many lenders offer unsecured business loans at interest rates between 7 percent and 19 percent. But interest rates can be as high as 75%-99% for some borrowers. A good interest rate is the lowest rate you can find for your company's credit profile.