If you’re running a business, chances are you’ll need a loan at some point—whether it’s to expand, invest in new equipment, or simply improve cash flow. But before you sign on the dotted line, understanding interest rates is crucial. After all, the rate you secure can make a massive difference to how much you end up repaying.
So, let’s break it down: what affects business loan interest rates, how can you get the best possible deal, and which loans from Match Finance might be right for you?
What Determines Business Loan Interest Rates?
Lenders consider several factors when setting interest rates, and knowing what they look for can help you position yourself for a better deal.
1. Your Credit Score
Just like with personal loans, a strong credit score suggests you’re a responsible borrower. The higher your score, the lower the risk for lenders—and that often means a lower interest rate for you.
2. The Type of Loan
Different types of business loans come with different rates.
- Secured loans (where you offer collateral like property or equipment) typically have lower rates since the lender has some security.
- Unsecured loans (where no collateral is needed) are riskier for lenders, so they come with higher interest rates.
- Government-backed loans, like those from the British Business Bank, often offer competitive rates to support small businesses.
3. The Lender You Choose
High-street banks, online lenders, and alternative finance providers all offer different interest rates. Traditional banks may have stricter criteria but lower rates, whereas online lenders may be more flexible but slightly more expensive.
4. The Length of the Loan Term
Shorter-term loans tend to have higher interest rates but lower overall costs, while longer-term loans might offer lower monthly payments but could cost you more in the long run due to accumulating interest.
5. Market Conditions
Interest rates fluctuate based on the Bank of England’s base rate and the overall economy. When base rates rise, lenders tend to follow suit, so timing can play a role in securing a good deal.
How to Secure the Best Interest Rate on a Business Loan
Now that you know what affects your rate, here’s how to improve your chances of getting the best possible deal:
1. Improve Your Credit Score
Check your business and personal credit scores before applying. If they’re not in great shape, take steps to improve them—pay down existing debts, correct any errors, and avoid making multiple credit applications in a short period.
2. Offer Collateral if Possible
If you can provide security for the loan, lenders are more likely to offer a lower interest rate. Just be sure you’re comfortable with the risk of losing the asset if you can’t repay.
3. Shop Around
Don’t just accept the first offer you get. Compare rates from banks, online lenders, and government-backed schemes to find the best deal.
4. Negotiate
Lenders want your business, so don’t be afraid to negotiate. If you have strong financials or multiple offers, use that as leverage to secure a better rate.
5. Borrow Only What You Need
Larger loans might seem tempting, but only borrow what’s necessary. The more you borrow, the more interest you’ll pay, so keep it lean and focused on business needs.
6. Apply at the Right Time
If market rates are particularly high, it might be worth waiting if you can. Keep an eye on the Bank of England’s announcements and apply when rates are favourable.
Which Match Finance Loan is Right for You?
With over a decade of experience, Match Finance specialises in sourcing bespoke funding solutions for businesses across the UK. We operate a whole-of-market panel, ensuring clients have access to the best financial options available. Our commitment to speed and efficiency means businesses can secure the funds they require promptly, with dedicated support throughout the application process and beyond.
Loan Options Offered by Match Finance
1. Secured Business Loans
Secured loans involve borrowing against valuable assets such as machinery, land, or buildings. At Match Finance, these loans start from £10,000. Due to the collateral provided, lenders perceive a reduced risk, often resulting in lower interest rates compared to unsecured loans.
Benefits of Secured Loans:
- Lower Interest Rates: The collateral reduces lender risk, leading to more favourable rates.
- Higher Borrowing Limits: The security provided can allow access to larger loan amounts.
- Longer Repayment Terms: Lenders may offer extended terms due to the reduced risk.
Considerations:
- Asset Risk: Defaulting on the loan could lead to the loss of the pledged collateral.
- Valuation Requirements: Assets must be accurately valued to determine borrowing capacity.
2. Unsecured Business Loans
Unsecured loans do not require collateral, relying instead on the business’s creditworthiness. Match Finance offers unsecured loans ranging from £1,000 to £2 million, providing quick access to funds—typically within four hours of approval. However, due to the increased risk for lenders, these loans often come with higher interest rates compared to secured loans.
Benefits of Unsecured Loans:
- No Collateral Needed: Ideal for businesses without substantial assets to pledge.
- Quick Access to Funds: Streamlined processes enable rapid funding.
- Flexible Borrowing: Suitable for various business needs without asset constraints.
Considerations:
- Higher Interest Rates: Reflecting the increased risk to lenders.
- Personal Guarantees: May be required, putting personal assets at risk in case of default.
3. Asset Finance
This option allows businesses to acquire new equipment or release capital from existing assets. While specific interest rates depend on the asset and agreement terms, asset finance can be a cost-effective way to manage cash flow and invest in growth.
4. Invoice Finance
Invoice finance enables businesses to access funds tied up in unpaid invoices. By advancing a percentage of the invoice value, companies can improve cash flow without waiting for client payments. Fees and interest rates vary but are often offset by the benefits of immediate cash availability.
5. Merchant Cash Advance
Tailored for businesses that receive payments through card transactions, a merchant cash advance provides a lump sum repaid via a percentage of daily card sales. This flexible repayment method aligns with business performance, though interest rates can be higher due to the convenience and risk involved.
Which Loan Offers the Best Interest Rates?
Generally, secured loans tend to offer the most favourable interest rates due to the collateral reducing lender risk. Unsecured loans typically come with higher rates, reflecting the increased risk to the lender. Asset finance and invoice finance rates vary based on specific agreements and asset values but can be competitive. Merchant cash advances often have higher rates due to their flexible repayment structures.
Final Thoughts
Navigating business loan interest rates might seem daunting, but with the right knowledge and preparation, you can secure a deal that works in your best interests. By improving your creditworthiness, exploring different lenders, and negotiating smartly, you’ll increase your chances of securing a competitive interest rate.
For tailored advice, reach out to us directly for a quote that won’t affect your credit score. Our expertise and range of solutions can help you secure the funding that aligns best with your business goals, getting you the finance you need to build a bright business future.
