Available capital is crucial to any business, small or large. Even publicly-traded companies often find themselves in the midst of capital constraints.
When most small business owners run into capital issues, the first thing they think is, “I’ll take out a business loan.” That idea sounds great on the surface, but there are other ways to secure capital that can be quicker to obtain and less cumbersome. First, let’s examine some basics of borrowing.
What Is the Interest Rate on a Business Loan?
The interest rate on your loan is essentially the cost of accessing your capital. However, there’s no actual average interest rate for business loans because interest rates are determined by several factors and typically range from 5% to 10%, or sometimes higher. Some of the deciding factors for your interest rate include:
- The Lender. Traditional lenders are in business to make money, and they can dictate the terms of a loan, so interest rates will vary from one lender to the next.
- The Loan Type. There are several different types of loans, but the lowest rates tend to come with Small Business Administration (SBA) loans.
- Your Situation. When determining your rate, lenders will also consider your credit score, financial history, collateral, and business needs.
Is a Small Business Loan a Fixed or Variable Interest Rate?
Another question that doesn’t have a one-size-fits-all answer. Small business loans may have fixed or variable interest rates. Here’s how they work:
- Fixed Rate. A fixed-rate small business loan will charge the same amount of interest for the life of the loan.
- Variable Rate. A variable-rate small business loan’s interest rate is tied to a benchmark, like the Wall Street Journal Prime Rate. The rate increases when the benchmark increases, and when the benchmark falls, the rate decreases.
How Much are Loan Fees?
Interest rates aren’t typically the only fee you pay when you access a small business loan. Keep in mind that every lender is different so fees will vary wildly from one to the next. Look out for these common fees before you apply:
- Loan Origination Fees. This is a fee lenders charge to open your loan account.
- Underwriting Fees. The cost of reviewing your company’s worthiness as a borrower.
- Closing Costs. The administrative costs associated with closing the loan.
- SBA Loan Guarantee Fee. This fee is specific to SBA loans.
There is an Attractive Alternative To Cash Flowing Your Business!
Although you might think of small business loans first, the hassle of accessing this capital means it may not be your best option. TXP Capital can help! We are a factoring company that allows you to leverage your unpaid invoices for immediate cash instead of collateral in the traditional sense. This can make accessing cash easier than borrowing from a bank. For some businesses, it’s a more attainable process for cash flowing your business.When you complete a job, you can sell the invoice to TXP Capital. TXP then pays you the value of the invoice minus a small fee and immediately takes control of the collection process. This could put money in your pocket months faster and with far fewer headaches than managing your collections process. Contact us today to see how we can help you!
