Estimating the Average Interest Rate for a Small Business

The question what is the average interest rate for a small business loan is debatable because of varying determining factors such as different types of product, different business and different levels and kinds of risk involved. Each of the above factors demands a different rate of interest, and they all merge to alter those rates in a manner that makes a definite  “average”  that’s false.

First American merchant feels merchants should be guided on how to determine their small business loan interest rates depending on their type of businesses and many other factors.

Type of Small Business Loans- which one do you prefer?

There are two types of Small business loans: lines of credit and installment loans

A line of credit is more or less like a credit card. Once the lender sets a maximum amount of funds, you can borrow at any instance. If you like, you can borrow against the set credit limit to raise some working capital for your business. Every month, you repay an amount you are comfortable with (often with a set minimum). When you clear the balance your account remains active, and you can use the funds anytime you need them.

Just like with a car loan, an installment loan allows you to have a loan of a set amount of cash. The lender expects you to make monthly payments on your loan until you have repaid a total of the interest, the fees, and the sum you borrowed. When you clear the balance, the loan is fully paid, and your business rapport with your lender is over.

Which is the better option?

As you can see, the financial relations are very different. An installment loan is cheaper to maintain, and a safer investment for the lender since it provides stable monthly income, and according to statistics, they are more likely to be repaid in full. This, therefore, means a financial provider like First American Merchant can offer you an installment loan at a relatively lower rate of interest than a business line of credit.

On a weighing scale, an installment loan’s rate of interest and that of a line of credit does not give a comprehensive assessment of which option is better. Although with a line of credit you can enjoy convenience and flexibility which is not the case with an installment loan, these features cost more due to the expenses and risks that they come with.