What is a good interest rate for a business loan?

Why there's no universal number

A "good" business loan rate is relative. Rates vary enormously by product, term, security and borrower risk, so a figure that is excellent for one type of finance would be unthinkable for another. A long-term, secured loan to an established company sits at one end; fast, unsecured, short-term working capital sits at the other — and they aren't comparable on rate alone. The honest answer is that a good rate is one that fairly reflects what you are borrowing, on what terms, and that your company can comfortably service. Chasing the lowest headline number can lead you to the wrong product entirely.

Why short-term finance costs more (and why that can be fine)

Short-term, unsecured business finance carries a higher headline rate than a long-term secured loan, for sound reasons:

• It is unsecured — no asset backs the lending, so the lender carries more risk
• It is fast and flexible — speed and convenience have a price
• It is short — a higher rate over a few months can still be a small total cost

A higher percentage applied for three months can cost far less in pounds than a lower percentage running for three years. For working capital, the rate is only half the story — the term is the other half.

What actually influences your rate

The rate a lender offers your company reflects its read of the risk. Stronger trading history, healthy and consistent cash flow, a clean repayment record and a clear, productive use for the funds all support a more favourable rate. A newer business, thinner margins or an irregular cash pattern push the other way. Whether the finance is secured also matters: security lowers the lender's risk and usually the rate, but puts an asset on the line. None of this is arbitrary — it is the lender pricing the specific risk your application represents.

What this means for your company

Don't shop on headline rate alone. Decide what type of finance fits the need first, then compare like-for-like offers on total amount repayable over the term you actually need. A short-term facility with a higher rate but a low total cost and no early-settlement penalty can be the better deal. Strengthen your position with clean figures and a clear purpose. See how Credicorp prices its short-term facilities on the business loans page, and read how much does a business loan cost?.