Business Loan Interest Rates

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Lowest-Business Loan Interest Rates in Australia

Lowest business loan interest rates in Australia

The lowest business loan interest rates will be applied to business loans secured against property, and where the asset being financed will be used as security. Business loan interest rates start from around 5%. For business finance with no security offered, rates start from around 12%.

A secured loan reduces the level of risk presented to a lender when approving your application for finance, and reduced risk as a borrower will result in lower interest rates on a business loan.

Compare business loan interest rates

type of business loanlowest fixed interest rates
Unsecured Business LoansFrom 12.00%
Small Business LoansFrom 5.00%
Business Line of CreditFrom 5.00%
Business OverdraftFrom 14.95%
Equipment FinanceFrom 4.49%
Business Credit CardFrom 12.10%
Invoice FinanceFrom 1.5%
Traditional Bank LoanFrom 4.05%
Personal LoanFrom 6.99%
Fit-Out FinanceFrom 7.49%
Bad Credit Business LoanFrom 15.00%

Money Tip:

Want to compare loan offers? Use the Business Loan Calculator to estimate regular repayment amounts and total interest on loans in seconds.

Types of Business Loan Interest Rates

Types of business loan interest rates

There are three main ways lenders will advertise - and apply - interest on business loans:

  • APR (Annual Percentage Rate) 
  • Simple Interest Rate 
  • Factor Rate  

The type of interest applied will make a significant difference to the total amount you will repay.

Money Tip:

It’s important to make sure you understand how you are being charged for your business loan - an APR will allow you to easily compare lenders.

APR (Annual Percentage Rate)

Annual percentage rate (APR) indicates what percentage of the loan you’ll pay each year, including all payments and fees relating to the loan when calculating the figure. APR is ideal for borrowers, as it provides an accurate repayment figure which they can use to compare offers by various lenders.

Simple Interest Rate

Simple interest rates are the quickest way of calculating the interest amount on a loan. Simple interest is determined by multiplying:

  • The loan amount 
  • The interest rate 
  • The length of the loan 

However, a simple interest rate doesn’t take into account any fees applied to the loan, and therefore makes it less beneficial to borrowers as they cannot accurately compare lenders as they would with an APR.

Factor Rate

Lenders may also advertise a factor rate instead of an interest rate. Unlike an interest rate, which is calculated monthly on your reducing loan balance, a factor rate is a fixed amount calculated on the full balance when you take out your loan. 

A factor rate is expressed as a multiple of the loan, rather than a percentage. 

The factor rate amount will be added to your loan principal and remain fixed for the loan term. This means that even if you make extra payments on the loan balance, the amount of interest you pay won’t change.

Fixed vs variable interest rates

Fixed and variable interest rates on business loans

With the exception of a factor rate, which is always fixed, business loan interest rates may be advertised as either fixed or variable. Each has its own pros and cons:

  • Fixed-rate interest - A fixed rate will stay the same for the entire term of the business loan. A fixed rate indicates that whether interest rates rise or fall, you will still pay the initial agreed amount of interest. Often these business loans may include early-payment penalties. 
  • Variable-rate interest - A variable rate is subject to change across the term of the business loan. If interest rates fall, you may be in a better position than when you initially agreed to the loan. If interest rates rise, however, you will be obligated to pay a higher rate of interest.

Fixed-rate interest on business loans can help estimate the true cost of the loan over the term. If you are considering a business loan with a variable interest rate, it’s important that you first assess your ability to meet loan repayments should the interest rates increase over time.


How lenders apply interest to business loans

Lenders assess your loan application on your ability to repay the loan amount, and the level of risk you present as a borrower:

  • If you have a clean credit score, a successful business, and are borrowing a reasonable amount of money, you will present a low level of risk
  • If you have a poor credit score, a struggling business, and are borrowing a very large amount of money, you will present a higher level of risk

Factors that influence business loan interest rates can include:

  • Type of business finance you are applying for 
  • Term of your business loan 
  • Amount of money you are borrowing 
  • Value of the collateral - if any - you are providing as security 
  • Age of your business 
  • Trading history of your business 
  • The lender you are applying with 
  • Whether the rate is fixed or variable
Low interest rates

How to get the lowest interest rates on a business loan

You can access the lowest interest rates on business loans by considering each of the assessment factors and ensuring you present as little risk as possible in each of them. Below is a guide on how to identify risk in your application to ensure you qualify for the lowest business loan interest rates.

Risk Assessment Factors

Risk FactorLower RiskHigher Risk
CollateralSecured with propertyNo security
GuarantorsLow-risk guarantorNo guarantor
Business HistoryEstablished business with steady profits and stable customer and client relationshipNew business or seasonal business with fluctuating profits or a very small pool of clients
Borrower ProfileClean Credit History and established history of repaying any previous loansDefaults, Part IX or Bankruptcy
Type of Business LoanSecured loans used to purchase reclaimable assetsCash loans and unreclaimable asset loans
Use for the loanFinance business vehicles or high-value, long-life assetsRepay business debts

How to compare business loan interest rates

How to compare business loan interest rates

A low interest rate is a good indicator of the total cost you will pay on a business loan over the term - however, it’s not the only factor that will influence the true cost of a loan. 

To ensure payments are kept to a minimum over the entire term of the loan, you will need to consider other factors that can affect the total cost of the loan to your business, including:

  • Loan establishment fees 
  • Monthly or annual fees 
  • Late-payment penalties 
  • Early repayment penalties

In the table below, we’ll look at three loans of the same amount, with the same loan term and repayment frequency. The difference between the three is the advertised interest rate type

You can see below how the application of each interest type really impacts the actual APR and the total amount you are paying for your loan. In each example, the loan term is 9 months, and repayments are made monthly

Factor Rate vs Simple Interest vs APR

Interest TypeRateLoan AmountFees (3%)Actual APRTotal Cost
(Interest + Fees)
Factor Rate1.15$50,000$1,50038.68%$9,000
Simple Interest15%$50,000$1,50022.36%$7,125

Money Tip:

You can use the Factor Rate to APR converter to quickly compare advertised interest rates on various business loan offers.

Business Loan Interest Rates Summary

Business loan interest rates are assessed by lenders according to the level of risk a borrower presents. The lowest business loan interest rates are offered to high-performing, stable businesses with a clean credit history, and are secured with collateral.

In summary, business loan interest rates in Australia:

  • Start from around 5% for secured business loans 
  • Start from around 12% for unsecured business loans 
  • Are often lower when the loan is provided by a bank 
  • Are higher from business loan lenders, who offer faster approval in return 
  • Can be either fixed or variable 
  • Are determined by your borrower profile and borrowing history 

Business Loan Interest Rates FAQ

What is the interest rate for business loans?

Interest rates vary from lender to lender and between the various business loan products available in Australia. In general, secured business loans will start from around 5%, and unsecured business loans start from around 12%.

Who offers the best business loan interest rates?

Different lenders will offer different rates. Banks will often provide the lowest interest rates, but have strict approval criteria. Borrowers may often choose slightly higher interest rates from business loan lenders due to the faster approval time offered by these lenders.

Why do unsecured business loans have higher interest rates?

Unsecured business loans often have higher interest rates than secured business loans due to the lack of collateral used on the loan and subsequently higher risk to the lender. However, unsecured business loans can provide fast finance to small businesses with limited security to offer a lender.

How do I compare business loan interest rates?

To compare business loan interest rates, you can look at the type of business loan you wish to apply for, the lenders who offer them, and their qualifying criteria. You will then need to factor in any fees and penalties associated with the loan, and whether the interest rate is fixed or variable.

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