5 Secrets To Getting Great Small Business Loan Interest Rates

The larger your loan, the more important it is to know the secrets of getting great small business loan interest rates.

If you own and operate your own business chances are at some point you are going to need to take out some form of loan for various reasons. These reasons could be for expansion purposes, to repair damage caused by storms or general wear and tear on the property, or even to help your business survive the recession. Regardless of the reason, you need to keep an eye on small business loan interest rates when you do go and apply for a loan.

Secret No. 1:  Don't Ever Ask for "Working Capital"

You can expand a business, grow a business, purchase equipment, hire new employees, develop a new market.  But DON'T ask for "working capital".  "Working capital" is money down the drain that no one is accountable for.  Rather, define the specific uses for that money.  "Working capital" loans immediately spark higher small business loan interest rates.

Secret No. 2: Get All the Financing You Can In One Place

The interest rate is the amount of money you pay for the use of a lender's money for a specified period of time. You might borrow $35,000, but you’re going to pay the lender more than that over the length of the loan for the privilege of using their money. How much you end up paying for this privilege depends on the small business loan interest rates.

It takes a lender almost as much time to investigate a $35,000 loan as it takes to investigates a $350,000 loan.  Time is money to lenders.  Therefore, the smallest loans are going to have the highest interest rates to compensate for the extra time they require.

Secret No. 3:  Know How Soon You Can Pay It Back

Determine ahead of time whether a fixed rate or a variable rate would work better for your circumstances.



The vast majority of business loans are based on a fixed interest rate. A fixed rate means that the interest you are charged will not change during the course of the loan. If the market's interest rates fall, your rates will not change. The same is true if the interest rates go up, your small business loan interest rates will not reflect that increase. The nice thing about a fixed interest rate is you know from the very beginning exactly how much you will be paying to use the lending institution’s money.

Another common type of small business loan interest rate is the variable rate. With variable rates, the interest rate will fluctuate to reflect current market rates. Basically if interest rates rise, the amount of money you will be paying the lending institution will also go up. However, if interest rates fall, then you will be paying back a bit less. With this type of interest rate you will not know at the very beginning of the loan exactly how much money you will end up paying to the lending institution to use their funds.

Finally, there are a few lenders who are offering a capped interest rate. These types of small business loan interest rates are considered a better option for borrowers. With the capped rate, there is a set limit for how much the interest rate can rise over time.

However, if market interest rates go down, then the interest rates for your loan will also go down. The capped interest rate simply means that if the market interest rates go up, yours will stay at a certain point. This means that you know the maximum you’ll be paying for the use of the loan from the beginning, but that it could also be less than that amount depending on the market.

Interest rates can change for a variety of reasons including inflation, taxes, and the lender's alternative investments. By shopping around you’ll be able to secure the best deal for your business and will be able to obtain reasonable small business loan interest rates.

Secret No. 4:  Know Your Banker

Bankers don't have a lot of flexibility as far as small business loan interest rates are concerned, but they might have some.  Even a quarter of one percent drop can make a real difference for longer term loans.  So know you banker.  Say hello when you go into the bank, and ask for -- and listen -- to his advice.  It will pay off in the long run.

Secret No. 5:  Find the Right Bank for TheBest Small Business Loan Interest Rate

Not all banks lend to all companies.  Even if your sister in law is the manager of BigBank, it may not be the right bank for you.  Very often smaller, community minded banks and credit unions can do a much better job for small business than big banks.

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