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Business Line of Credit Rates: What You Need to Know

If you’re looking for flexible business financing, a line of credit could be a smart solution. But what rates can you expect to pay? Let’s break it down.

The Typical Range for Business Line of Credit Rates
Most business lines of credit have variable interest rates that fluctuate with the prime rate. Prime rate is the base rate banks use when lending to their most creditworthy customers.

Currently, prime rates from major banks range from around 7-8% APR. On top of the prime rate, you’ll pay an additional markup based on:

– Your credit scores
– Annual revenues
– Time in business
– Industry risk
– Etc.

So while a borrower with excellent credit might pay prime + 1% (making their total APR around 8-9%), subprime borrowers may see rates of prime + 5% or higher. That could equal 12-13% APR or more.

Always Check the Fees Too
In addition to the interest rate, business lines of credit often carry annoying junk fees that drive up the total cost:

– Application or origination fees
– Annual fees
– Maintenance fees
– Inactivity fees
– Cash advance fees

These nickle-and-dime charges can really add up, even if the stated APR seems reasonable. Always scrutinize the fee schedule.

How to Qualify for the Best Rates
Creditworthiness is key for scoring low rates on a business line of credit. You’ll need excellent personal credit scores (720+) and strong, consistent business revenues.

Your industry, time in business, cash flow, and debt load also play a role. Young startups or businesses with shaky finances can expect to pay a premium.

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The lower the perceived risk to the lender, the lower your rate will be. Make sure to shop around and compare multiple offers before accepting.

Secured vs. Unsecured Interest Rates
Some lenders offer secured business lines of credit where you put up collateral (like real estate, inventory, etc.). Secured lines tend to have lower rates since there’s less risk for the lender.

Unsecured lines of credit are riskier for lenders, so they charge higher rates as a result. Be prepared for potentially double-digit APRs, depending on your qualifications.

Bottom Line
Business line of credit rates cover a broad range based on your business’s credentials and the amount of risk involved for the lender. Stronger applicants receive lower rates, sometimes in the single digits.

If the rates you’re quoted seem sky-high, you may need to shore up your qualifications. Or consider a secured line, SBA loan, or alternative financing to access affordable capital.

Do your due diligence, shop around, and crunch the numbers carefully before signing for any business line of credit.

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