The Average [2020] Interest Rate on a Business Line of Credit

For small businesses, a business line of credit is the perfect lifeline. Whether you have a huge opportunity on hand or need to solve a problem, this financing option gives you a simple, fast and easy way to cover expenses. It’s a particularly helpful financing tool if your business is ramping back up after COVID-19—you can draw more as you go, you only pay interest on the amount you draw, and more cash becomes available as you pay it down. For many small business owners, the question becomes: what business line of credit rates can you get?

The business line of credit rates can vary significantly depending on your business, the economy, and the type of lender you go to. Typically, it’s easier to qualify for the best rates in a booming economy than a difficult one. Here’s what you need to know about business line of credit rates.

business line of credit rates

Average Rate for Business Lines of Credit By Lender Type

According to Nav, these are the business line of credit rates for 2019:

  • SBA line of credit: prime rate plus 1.25%
  • Banks: 7%
  • Online lenders: 14%-70%

The type of lender you apply through can also play into your provided rates. Traditional lenders offer lower rates, but have substantially higher requirements, and often, a more difficult process.

However, the business line of credit rates for 2020 may vary significantly. Due to the coronavirus, many small businesses were forced to partially or fully close for a stretch of time. Lenders are aware that, as a result, many small businesses are generating lower revenue. While rates are determined on a business-by-business basis, this event could impact the average rates.

Business lines of credit are particularly helpful for small businesses with unknown expenses ahead. However, they’re not the only option. These are the 2019 rates for other popular financing options, including small business loans:

  • Bank loans: 4-12%
  • SBA 7(a) loans: 7.75-10.25%
  • Short-term loans: 8.5-80%
  • Medium-term loans: 7-30%
  • Online term loans: 7-99%
  • Merchant cash advances: 20-250%
  • Invoice factoring: 13-60%

Like lines of credit, rates on these financing options will vary based on where you go.

What About Interest Rates on Unsecured Business Lines of Credit?

Unlike secure business lines of credit, unsecured options don’t require collateral. While this structure benefits the borrower, it means the lender must take on more risk. For this reason, interest rates for unsecured lines of credit tend to be higher.

An unsecured business line of credit may be the only option for businesses that don’t currently own real estate. Without real estate to put up as collateral, an unsecured product may be the only option. 

While you can obtain an unsecured line of credit, getting a business line of credit without a personal guarantee is a different story. Essentially, a personal guarantee means that you’re personally liable to pay back the interest in the event your business defaults.

What to Expect With Bad Credit

The business line of credit rate that a lender quotes you is a representation of the risk they perceive based on your business. Lenders determine this risk based on your credit score, along with a number of other factors. In many cases, having a lower credit score may cause you to receive higher rates.

However, that doesn’t mean you’re out of options. Traditional lenders tend to weigh credit score as a more important factor, but for online lenders, it’s only a piece of the puzzle. 

In other words, bad credit certainly won’t put you out of the running—but it could mean you’ll qualify for higher business line of credit rates.

The Requirements for a Business Line of Credit

Your business line of credit interest rate offer will be dependent on a number of factors. However, not every lender calculates rates using the same formula—your offer can vary based on where you go. 

Lenders tend to consider:

  • Your time in business: the longer you’ve been operational, the better
  • Your business’s annual revenue: online lenders will require a minimum of $150K, while more traditional lenders may have higher expectations
  • Credit score: the higher your credit score, the better options you’ll receive (though you may still qualify for a business line of credit with a lower score)
  • Industry: higher-risk industries generally lead to higher interest rates

Some lenders that only offer secured lines of credit may require collateral as well. Even if you can receive an unsecured line of credit, putting up collateral may lower your rates—but be careful of putting your home up for business financing.

As a startup with over 6 months in business, you should have some options, though you may not be able to make the same comparisons as other business owners.

Overall, lenders tend to evaluate your risk based on different models. If you’re searching for financing and receive a high interest rate from a bank, remember that other lenders may look at your business in different ways.

In the current landscape, qualifying for a low business line of credit rate might be more challenging. Before offering an approval, lenders will take a close look at how you’re performing post-covid. Because nearly every business and industry was affected, lenders are paying close attention to recent performance.

Most importantly, they’ll look at your annual sales, as well as monthly sales, and possibly, month-to-date numbers.

Your business’s location could play a crucial role in determining business line of credit rates (and approvals), too. As the nation continues to adapt, coronavirus numbers everywhere are changing—and with them, small business operating rules. Chances are, states and cities with higher COVID-19 numbers may have more trouble obtaining better offers due to the potential for restrictions or a shutdown.

You can calculate your estimated payback amounts using a business line of credit calculator.

Learn Your Business Line of Credit Interest Rate Options

Why wait when you can learn your options in seconds?

At National, we work within our 75+ lender platform to help you find your options through a fast, simple and easy process. The application takes 60 seconds, and your business could be funded in just a few hours. 

With a true revolving line of credit, you can draw even more cash as you pay it down—and without applying twice.

Get started taking things to the next level by applying now!

National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!

About the Author, Matt Carrigan

Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.