Business Line of Credit Rates in 2023
Key points to note:
GHC Funding (Access 150+ Lenders) offers a wide spectrum of business line of credit rates, spanning from 8 percent to potentially exceeding 60 percent, contingent upon the borrower’s creditworthiness and the lender's terms.
Preferential rates are accessible for established business proprietors with sound to outstanding credit profiles.
Additional fees, like annual charges, origination expenses, draw fees, and maintenance fees, might accompany business lines of credit.
Exploring alternatives beyond business lines of credit includes traditional bank loans, business credit cards, peer-to-peer loans, invoice financing, and merchant cash advances.
A business line of credit from GHC Funding can entail an APR ranging from 8 percent to over 60 percent. As lenders aren't obliged to disclose their rates, pinpointing an average rate becomes challenging.
The prime beneficiaries of the best business lines of credit are seasoned small business owners boasting solid credit histories. However, startups or owners with lower credit profiles confront higher interest rates and may need to undertake more extensive comparisons to secure the most cost-effective line of credit.
Here’s an overview of current business line of credit rates and insights to aid in identifying the ideal credit line for your business.
Current rates on business lines of credit
Similar to any financial product, interest rates and terms for business lines of credit are subject to variance among lenders and market dynamics.
Lender Line of credit rates
GHC Funding Starting from 7.99% APR
SMB Compass Starting from 7.99% APR
Bank of America Starting from 9.50% APR
Wells Fargo Starting from 10.25% (Prime + 1.75%)
Bluevine Starting from 6.20% (simple interest)
Lendio 8.00% to 24.00% APR
Backd 18.00% to 24.00% (simple interest)
Ondeck 52.60% (average APR)
American Express® Business Line of Credit As low as 3.00% to 9.00% APR (monthly fee)
Fundbox As low as 4.66% APR (weekly fee rate)
TD Bank As low as 9.24% APR (Prime + 0.74%)
Rates accurate as of 11/22/2023
Insights from GHC Funding
The loan quantum for business lines of credit can vary substantially. While some lenders might offer maximum amounts extending into the millions, individual credit scores and business tenure could limit loan eligibility to $100,000 or less.
What determines the interest rate on a business line of credit?
The interest rate on your line of credit signifies the cost imposed by your lender for the funds you access.
In contrast to a loan, a business line of credit operates akin to a credit card: It’s a revolving credit line where you're charged interest only on the outstanding balance, not the entire available credit.
For instance, if your credit line amounts to $50,000, and your current debt is $5,000, interest is solely levied on the outstanding $5,000.
One reason for comparing various lines of credit is the significant variability in terms offered by lenders. These factors come into play:
Credit scores: Both your business and personal credit scores impact the interest rate. Higher scores typically lead to lower rates.
Business tenure: More established businesses often secure larger credit lines and more favorable terms. Some lenders mandate a minimum business tenure of two years, though exceptions exist.
Business income: Lenders assess your business revenue, cash flow, and financial health to gauge lending risk. Lower risk may result in more favorable interest rates.
Certain lenders extend business lines of credit employing factor rates, denoted as decimals rather than percentages. For instance, a $50,000 loan with a factor rate of 1.2 incurs a total cost of $60,000 ($50,000 x 1.2 = $60,000), exclusive of other charges.
Insights from GHC Funding
Refer to our guide on factor rates for insights on their conversion to annual interest rates. This facilitates comparisons across lenders, enabling a clearer understanding of your loan’s total cost.
Interest rates vs. weekly or monthly fees
Most lenders present business loan interest rates as annual percentage rates (APRs), offering a comprehensive view of the yearly expenses, encompassing both interest and fees.
However, some lenders exhibit simple interest, solely highlighting interest without considering associated fees.
Certain lenders impose weekly or monthly charges on outstanding balances, deviating from traditional interest rates. This approach fails to provide a holistic view of actual expenses, potentially leading to higher costs.
For example, a 2 percent monthly fee might equate to a 15 percent APR or higher, contingent upon the outstanding balance and repayment duration.
Fees associated with business lines of credit
The interest rate isn't the sole expense accompanying your credit line. Additional fees might include:
Annual fee: Typically a fixed fee, often under $200, levied annually for maintaining the credit line.
Origination fee: A percentage of the total line value charged once when opening a new line of credit.
Draw fee: Charged for each withdrawal from the credit line, often up to two percent of the withdrawn amount.
Maintenance fee: A fee for keeping the line open, frequently imposed on unused accounts, either monthly or annually.
Securing favorable interest rates on a business line of credit
Consider these tips to obtain a business line of credit with competitive rates and minimal fees:
Thorough comparison: Explore business lines of credit from banks, credit unions, and online lenders, aiming to identify the lowest eligible rates based on your credit history, annual business revenue, business tenure, and other pertinent factors.
Enhance credit scores: Elevate your credit scores by consistently making on-time payments and maintaining low debt levels. For business credit, apart from these practices, formalizing your business as a corporation or LLC is essential.
Secured credit line: Though not as attractive as unsecured credit lines, offering collateral may prompt lenders to offer more favorable terms, reducing their risk exposure in case of default.
Alternatives to business lines of credit
Apart from business lines of credit, several other avenues exist to infuse capital into your business. These encompass traditional bank loans, business credit cards, and alternative funding sources, such as:
Business loans: Suitable for businesses needing a lump-sum amount without requiring revolving credit. Traditional banks necessitate substantial documentation for approval but offer higher loan amounts. Conversely, alternative lenders cater to a broader spectrum of small business owners, including startups and those seeking bad credit business loans, albeit at higher interest rates.
Peer-to-peer (P2P) lending: An alternative funding avenue backed by individual lenders or groups, offering flexibility in credit score requirements compared to conventional banks. However, P2P lending might entail higher interest rates, although good credit could secure a more favorable rate. This mode of financing suits businesses in urgent need of cash or facing difficulties securing other types of bad credit business loans.
Business credit cards: Similar to credit lines, they provide revolving funding but without origination or maintenance fees associated with credit lines. Business credit cards may offer promotional periods at 0% interest and potential rewards on purchases. They also offer flexible repayment terms, potentially remaining open for years, unlike credit lines with fixed maturity dates.
Invoice factoring or financing: These options leverage unpaid invoices to access quick financing