Types of rate
Fixed vs variable interest
How to get low rates
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 loan||lowest fixed interest rates|
|Unsecured Business Loans||From 12.00%|
|Small Business Loans||From 5.00%|
|Business Line of Credit||From 5.00%|
|Business Overdraft||From 14.95%|
|Equipment Finance||From 4.49%|
|Business Credit Card||From 12.10%|
|Invoice Finance||From 1.5%|
|Traditional Bank Loan||From 4.05%|
|Personal Loan||From 6.99%|
|Fit-Out Finance||From 7.49%|
|Bad Credit Business Loan||From 15.00%|
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
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.
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.
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 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
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 Factor||Lower Risk||Higher Risk|
|Collateral||Secured with property||No security|
|Guarantors||Low-risk guarantor||No guarantor|
|Business History||Established business with steady profits and stable customer and client relationship||New business or seasonal business with fluctuating profits or a very small pool of clients|
|Borrower Profile||Clean Credit History and established history of repaying any previous loans||Defaults, Part IX or Bankruptcy|
|Type of Business Loan||Secured loans used to purchase reclaimable assets||Cash loans and unreclaimable asset loans|
|Use for the loan||Finance business vehicles or high-value, long-life assets||Repay business debts|
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 Type||Rate||Loan Amount||Fees (3%)||Actual APR||Total Cost|
(Interest + Fees)
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.