Disclaimer: Information in the term loan articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the term loan articles often covers financial products that Biz2Credit does not currently offer.

Errors or mistakes that negatively impact your credit history can result in higher business loan interest rates. On top of this, failing to check your credit reports for errors or conduct adequate loan research and selecting the wrong loan type can also increase your business loan rate.

This guide explains the most common mistakes small business owners make that can increase their business loan interest rates or, worse, prevent them from getting approved for financing.

Mistake #1: Ignoring Your Personal Credit Score

Business loan providers will review your  to determine your creditworthiness before approving a loan for your small business. Your personal score is a significant part of what a business loan provider considers. A bad personal credit score could be the reason they deny you.

When managing your personal finances, always consider the potential impact on your business. For instance:

• Closing an old credit card account could lower your available credit which could harm your credit report.
• Something as simple as a late payment to a credit card company could negatively impact your repayment terms. Always stay on top of your personal credit to optimize your position for business financing.

Mistake #2: Not Reviewing Credit Reports

Credit bureaus are fallible and make mistakes that could impact your business loan rate. That’s why reviewing business and personal credit reports from providers like Experian is critical before applying for small business financing.

Mistake #3: Poor Loan Option Research

Research the different loans and financing options available to your business before applying.

It’s always best practice to research different types of loans and providers. Lay out all the information in a spreadsheet to see the options in a single place to help you identify the best ones with the lowest business loan rate.

Also, don’t hesitate to ask for help and advice from your local financial and business contacts. Check with business owners about their lending experiences, and look at online ratings and reviews.

Doing your due diligence will allow you to make informed choices to keep your interest rate low.

Mistake #4: Selecting the Wrong Business Loan Type

Selecting the wrong type of loan for your business needs can result in needlessly high business loan rates.

Make it a point to ensure you’ve considered all the different types of business loans and providers before choosing.

Turning to a short-term loan to buy new equipment doesn't make sense when low-interest equipment financing is available. Similarly, you probably don’t want to secure a relatively high-interest long-term business loan from a traditional bank when you could get a similar business purchase loan at a lower cost from an online lender.

Selecting the right loan will help ensure your business loan rate and monthly payments are as low as possible.

Mistake #5: A Mediocre Business Plan

Most business loan providers will review your business plan before approving financing.

An imperfect business plan gives lenders a reason to increase your business loan rate or deny business funding. Putting in the thinking to develop a great business plan is a worthwhile exercise for business owners.

Mistake #6: Seeking Financing Without Defining Clear Success Metrics

Borrowing money that doesn’t result in bottom-line business improvement or expansion may communicate to lenders that you’re using the financing to tread water or prevent your business from going under.

When you apply for financing, ensure it’s for a defined positive business purpose and have a clear plan for measuring success. When you apply for financing in the future, communicating previous success with a loan to future lenders can demonstrate that you know how to borrow money effectively, which could help you avoid higher business loan rates and earn better terms.

Mistake #7: Not Being Willing to Put Up Collateral

That’s why it’s necessary for company owners to put up business and personal assets to back a loan during the loan application process. It could be things like a vehicle, property, or equipment. Doing so demonstrates your commitment to your organization and makes it less likely you will default on your loan. Putting up collateral sends the right signals to loan providers to potentially help earn you lower business loan rates.

Final Thoughts on Business Loan Interest Rate Mistakes

It may seem like you don’t have control over the business interest rates lenders charge on your business loan, but that’s not the case. If you actively avoid the seven mistakes explained in this article, you should find that your business loan low interest rates won’t increase — and may actually fall over time.

Frequently Asked Questions

What is the biggest mistake that could increase small business loan rates?

The most critical error is choosing the wrong loan type or provider. For example, using a high-cost merchant cash advance for a business emergency is unwise when a low-interest business line of credit is available. Similarly, opting for a short-term bank loan might result in higher rates than an SBA loan from an approved provider.

Is it a mistake to only seek out non-collateralized business loans?

Putting up business or personal collateral demonstrates you have a stake in repaying the financing. It sends positive signals to the lender and reduces their risk, typically resulting in lower business loan rates and more favorable loan terms.

Does my personal credit score matter when it comes to getting business financing?

Your personal credit score shows how you handle money, and lenders assume these habits carry over to your business. A poor score suggests risky financial behavior, while a strong score shows responsibility. This means business owners with better personal credit are more likely to secure loans at lower rates.

Do I need a business plan to qualify for a small business loan?

In most cases, yes. However, submitting a sub-par business plan can be a big mistake. Your business plan is a representation of the future of your organization. If your plan is well-thought-out and complete, it demonstrates that you’re serious about the future of your small business, which could earn you more favorable business loan rates and terms.

Are all small business loans created equal?

No, and neither are lenders. It's up to you to research and find the best loan and provider for your needs. Choosing the wrong loan can cost you in extra interest.

Frequent searches leading to this page

business loan low interest rate, business interest rates, business purchase loan, low interest business loan