How Much Does a Business Loan Cost? Rates and Fees Explained

If you’re thinking of starting your own small business or trying to keep one afloat, you’ll likely need a loan from a bank, online lender, or credit union to cover the high cost of owning a business and having it succeed. Where you take out a small business loan can impact how much you pay over time.

Six in 10 small businesses that borrowed from an online lender said their borrowing costs came in higher than they expected, a larger share than for any other lender type.

Expert Take: Borrowers go online for fast money and easier approval, but the cost often shows up as a factor rate or a fee structure rather than an APR, which makes it hard to compare against a bank offer until the money is already spent.

This guide unpacks what actually determines the cost of a small business loan, so you can find an affordable option instead of getting surprised by the total once the money's already spent.

There are a few types of business loans available, and while the one you need will likely depend on the type of business you own or are starting, here are the most common kinds to consider:

1. SBA loan: The U.S. Small Business Administration backs these loans and typically offers longer repayment terms and more favorable rates than a business could get on its own from a private lender. The SBA also offers SBA microloans of up to $50,000, which may suit newer or very small businesses.

2. Business line of credit: A business line of credit is a preset amount of revolving credit from a lender, similar to a credit card or a HELOC. You don't have to draw the full amount, funds replenish as you repay, and you pay interest only on what you use.

3. Term loan: A term loan is a lump sum from a bank, credit union, or online lender, secured or unsecured, repaid over a set number of years at a fixed or variable rate.

Personal Opinion: SBA loans deserve to be a first stop when you research business financing, not the fallback after a bank says no. The program is built to reach borrowers the conventional market won't serve, to the point that SBA requires 7(a) applicants to show they can't get the credit they need on reasonable terms elsewhere.

Microloans go further, putting cash in the hands of people who may not clear a bank's underwriting, or who would only clear it at a rate that makes the loan hard to carry. The tradeoff is time, because an SBA application asks more of you upfront than an online lender does.

A small business loan's cost comes down to three things: the interest rate, the fees, and how long you take to repay. Change any one of them and your total cost shifts with it. If your interest or APR goes up, for example, you could end up paying more than you can afford.

Interest

The interest rate is the price of borrowing the money. It depends on your credit, time in business, revenue, collateral, and the type of loan you choose. Stronger financials and collateral generally mean a lower rate.

Fees

Fees add to what you pay on top of interest. Some, such as origination fees, are charged up front. Others show up only in specific situations, such as drawing on a line of credit. Common fees on business loans include:

• Insufficient fund fees

• Origination fees

• Closing costs

• Application fees

• Late payment fees

• Draw fees on lines of business credit

• SBA guarantee fees

• Prepayment fees, if you pay off your loan early

On SBA 7(a) loans, prepayment penalties are narrower than on many conventional loans. They apply only to loans of 15 years or longer, and only when a borrower prepays 25% or more of the balance within the first three years. The fee is 5% of the prepayment amount in year one, 3% in year two, and 1% in year three.

Repayment Term

Consider your terms carefully. A lower monthly payment may feel like a safer bet, but you're likely to pay more over the life of the loan. A shorter-term loan may cost more per payment, but you pay it off faster.

Your credit and your lender will influence your interest rates. For example, as of mid-July 2026, the U.S. bank prime loan rate was 6.75%. When prime moves, variable rates on many business loans move with it.

Treat every range as broad and borrower-dependent, but sources for the information above include Kansas City Fed, Small Business Lending Survey; U.S. Small Business Administration, SBA 7(a) terms and conditions; and SBA microloans, for which the SBA publishes maximum fixed interest rates via its FTA wiki.If you want to bring your rate down, make sure you're a prime borrower with excellent credit and a strong financial profile.

How Do SBA Loan Rates Work?

When you take out a government-backed SBA 7(a) loan, the rates are variable and tied to the prime rate plus a spread. What makes them different from most business loans is that the SBA caps how much a lender can add on top, and that cap tightens as the loan gets bigger.

As of July 4, 2026, eligible borrowers may combine 7(a) and 504 loans for up to $10 million in SBA-backed financing, double the previous cumulative limit.

If you need a smaller amount, SBA microloans remain a separate option, with rates set by the intermediary lender rather than the SBA itself.

The terms interest rate and APR are often used interchangeably, but they aren't the same thing, and knowing the difference can change which loan you choose.

• Interest rate: What it costs you to borrow the money.

• APR: What it costs you to borrow the money, plus the fees.

For example: Let's say two lenders offer you $50,000 over five years. One quotes 8% with a $2,500 origination fee. The other quotes 9.5% with no fee. The 8% loan looks like the obvious pick. But add in the origination fee, and it costs you about $13,300. The 9.5% loan, with no fee, costs roughly $13,000. The higher rate is the cheaper loan.

What About Factor Rates?

A factor rate is a flat multiplier applied once to what you borrow, not an annual rate. Factor rates turn up mainly on short-term, higher-risk financing options, like merchant cash advances and invoice factoring.

Traditional bank loans, SBA loans, and standard term loans don't use them. If a lender quotes you one, ask for the APR equivalent before you compare it to anything else.

Here's what $50,000 looks like across three lenders. These are estimates, not real offers.

A few things worth noting:

• The online loan isn't necessarily the most expensive: Even at nearly triple the bank rate, the shorter term keeps the total cost in the same range. What changes most is the monthly payment, more than double the bank loan's, since you're clearing the debt in half the time and your cash flow absorbs the difference for those 24 months.

• $50,000 is the SBA microloan program ceiling: This is a microloan at its maximum size. SBA requires microloans to be repaid within six years, which keeps the term comparable to the other two options here.

• Microloans matter for more than price: They're issued by nonprofit intermediary lenders whose mandate is to reach newer and smaller businesses, including ones that don't clear a bank's underwriting bar. If your credit profile or time in business keeps you from the rates in the bank column, a microloan may still be available to you, it just won't necessarily be cheaper.

• Build your business: Lenders offer their best terms and rates based on your financial situation, from your annual revenue to your credit profile. The best thing you can do before applying for a business loan is strengthen your business credit, since that's what unlocks the least expensive rates.

• Compare lenders: Like most loans, you can often prequalify (soft-credit impact) with multiple lenders to find the one offering the lowest rates and best terms.

• Consider collateral: If you take out a secured business loan, you can use collateral to boost your application and improve your offer. Collateral may include your personal residence, vehicle, jewelry, or even inventory or equipment from your business. Like all secured loans, there are inherent risks, namely loss of your assets, but lenders may offer you more money or better rates.

"If a conventional bank will give the borrower the leverage, amortization, and structure they need at better pricing, I'll generally lean toward using conventional. SBA becomes more attractive when the borrower needs higher leverage, a longer amortization, or simply doesn't fit neatly inside a bank's conventional credit box." says Iraklii "Nick" Panize, President and CEO of Westgate Capital Ventures.

The right choice depends on your finances and how fast you need the money. Matching the loan type to your situation is where the savings are, but you'll have the most options with excellent credit, so make a plan to work on raising your score if necessary.

• Established business with strong credit: A bank term loan or an SBA 7(a) loan usually delivers the lowest cost, especially if you can wait out the approval process. The longer application often pays for itself in interest saved.

• Newer business or need cash quickly: An online term loan or a line of credit can work, but watch the APR closely, since these tend to run higher and come with a real risk of surprise costs, as covered earlier.

1. Ask every lender for the APR, not the rate. If they'll only give you a rate, ask what fees are attached and add them yourself.

2. Get at least three offers so you can compare options.

3. Ask about prepayment penalties if you're planning to pay the loan off early.

4. Price a business credit card against the loan, especially for smaller amounts, since a revolving line of credit on a card could be more useful in some situations.

Before you sign anything, make sure you can answer these:

• Is this rate fixed or variable? If variable, what's it tied to?

• What happens to my total cost if I pay this off early?

• Do I need collateral, and what happens to it if I fall behind?

• Can I get an itemized cost breakdown in writing before I commit?

If you can't get a loan, don't panic, there are three common alternatives:

1. Business credit cards: Interest rates will be higher than loans, but a business credit card can provide a preset limit you can draw on for business expenses.

2. Crowdfunding platforms: Online platforms let small business owners crowdsource funds from interested investors. You'll typically be responsible for paying them back with equity in your business or products, or you can ask for donations.

3. Grants for small business owners: You aren't responsible for paying back a grant, so it's essentially free money from local, state, or federal government or private entities. The downside: grants are highly competitive, and you'll need to be good at research and paperwork.

The rate a lender advertises is only part of what you'll pay. Fees and repayment term move the total just as much, which is why two offers with similar rates can land thousands of dollars apart. Run the full cost on every offer, compare a few lenders on that number, and you'll have a clearer picture of what the financing actually costs your business now and as it grows.

• Federal Reserve, Selected Interest Rates (H.15): Prime rate.

• Federal Reserve Banks, 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey.

• Kansas City Fed, Small Business Lending Survey

• SBA 7(a) loan terms, conditions, and eligibility

• SBA microloans program

• SBA FTA wiki: Maximum fixed interest rates for microloans.

• SBA announcement on combined 7(a)/504 financing limits

• U.S. Chamber of Commerce: Guide to using collateral.