What are the factors affecting commercial loans interest rates?

What are the factors affecting commercial loans interest rates?

Published on 2022-10-17

Category: Business Loans

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When comparing business loans online, the interest rate tops the checklist for most people. After all, a difference of even half a percent can mean savings of hundreds of dollars – money that can be used to pay for other business expenses. Business loan interest rates can vary across lenders depending on their margins term of loan, the prevailing business lending rate, etc. Let’s understand the factors driving business loan interest rates in detail.

What are the factors affecting commercial loans interest rates?

In Australia, small business loan interest rates start at 5% while loans without collateral range from 15% to 30%. Interest rates can vary depending on end-use, credit score, time in business, business income and repayment period. Short term loans typically cost more while longer term loans have lower interest rates. Also, unsecured business loan interest rates tend to be on the higher side compared to secured loans given the risk factor. Loan providers apply business loan interest rates primarily in three ways – annual percentage rate, factor rate and simple interest rate.

In addition, fees charged by a lender can also add to the final cost you pay. For example, application fee, origination fee, service fees or prepayment fees. Any fees should also be considered when comparing loans online.

How can you reduce the interest you pay on your business loan?

A higher interest rate can impact business cash flow.However, you can reduce the interest you pay by:

  • Making additional repayments:

Paying a little extra every week/month can significantly reduce the amount of interest you pay over time.

  • Prepayment: 

Paying off your loan in advance can also reduce the total interest to be paid. However, some lenders may ask you to pay a prepayment fee, usually a certain percentage of the outstanding amount. So, make sure you fully understand the fees and charges before applying.

  • Keep your options open: 

Over the last few years, many online market places have made it easy for borrowers to compare offers from multiple lenders and choose the most cost-effective one. You can even switch your existing loan to another lender with a lower interest rate.

Is it possible to negotiate on the interest rate?

There is always room for negotiation, especially if you have other savings or business bank accounts with the same provider. With a bit of persuasion, they may be able to give you a better deal on the interest rate. However, a lot will depend on the lender’s terms and conditions and the prevailing commercial loans interest rates.

Tags: Business Loan Interest Rate, Commercial loans interest rates, Business loan interest rates, Small business loan interest rates, Short term loans, Apply business loan interest rates


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