What you should know about company loan rates

 With company loan rates tending to average between around 5% and 25%, it’s fair to wonder what would result in you receiving an offer at either the higher or lower end of that range. Here are some of the pivotal things you should know when reviewing company loan rates to ensure you get the most suitable option for you and your business.

How do company loan rates work?

Company loan rates are made up of an interest rate, which is a percentage of the amount owed, and sometimes, additional fees, which can include exit fees and admin fees.

How much the loan rate will be will depend a lot on the type of loan you’re seeking. We’ll start with the simplest – a government backed start up loan. This type of loan is suitable for businesses with less than three years of trading history, looking for £500-£25,000. They have a fixed loan rate of 6%. This means you pay 6% interest on the amount borrowed no matter what happens in the market or to your business.

Some other loans, for example, variable-rate interest-only commercial mortgages, come with interest rates that can change depending on a range of factors, including:

• Market fluctuations

• The lender’s profit margins

• Political tensions

• Even natural disasters

With this type of example, you would also only need to pay interest during the length of the term, you would then be expected to repay the entire loan at the end of the term. This means if you take out an interest only business mortgage in the amount of £250,000, you would still have to pay back the full £250,000 at the end of the term length, even if you’ve already paid that much back in interest. This would be a similar case for a variable-rate, interest-only bridging loan.

What affects the company loan rate?

• Credit score: Your personal and company credit scores can both have an impact on the company loan rate. A higher credit score demonstrates a stronger chance you are likely to repay the loan, which can signal less risk to the lender, so they are usually more inclined to put forward a more competitive interest rate.

• Loan type: Some loans are seen as less risky and therefore inherently come with reduced rates. For example, secured loans, which are loans that use an asset you own as collateral, tend to have lower rates than unsecured loans.

• Personal guarantee: Founders can sometimes provide a personal guarantee, which essentially says you’re personally responsible for repaying the full loan amount no matter what happens to your business. This can help reduce loan rates, but it also means you will still need to repay the loan even if your business closes down.

• The lender: Different lenders charge different rates. This is due to internal calculations on what they can afford to lose and what they need to charge to ensure they stay profitable.

• Loan term: How long you want to take out the money has an impact on the company loan rate. This is because the longer the term length, the more spread out the cost, and the less risky it is for the lender to extend the funds.

• Loan amount: A larger sum of money carries more risk and can therefore result in a higher loan rate.

Find a company loan

We help eligible businesses find company loans, or, as the Daily Telegraph put it, we’re “the matchmaking website for small businesses and lenders.” Click the link below to find out if you’re eligible for support from our experts in finding you the most suitable loan for your business. Don’t worry, just getting a quote only takes a minute, won’t cost you a penny, and won’t affect your credit score.

Find a company loan

 Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.