Business loan interest rates | How to get the best rate

When you take out a business loan, you repay the amount borrowed (the principal) plus interest (the cost of borrowing). The interest rate has a big impact on your total repayment and can make the difference between a competitive offer and an expensive one.

Whether you're financing growth or managing cash flow, understanding interest rates helps you make the right borrowing decisions. Here's a guide to how they work, what affects them, and how to get the best option for your business.

What are business loan interest rates?

A business loan interest rate is the cost you pay to borrow money. Lenders charge interest to cover the risk that you might not repay the loan and the fact that they could have used the money elsewhere, like investing it.

This interest is usually shown as a yearly percentage of the amount you borrow. For example, if you take out a £50,000 loan at 10% annual simple interest rate, you’ll pay £5,000 a year in interest.

Most lenders show the cost as an Annual Percentage Rate (APR). APR includes the interest plus certain fees, giving you a clearer view of the loan’s total yearly cost.

However, not all fees are always included in the APR. Some, like arrangement fees or early repayment charges, may be added at the start or built into your repayments. That’s why it’s important to work with a funding partner who can explain the full cost of borrowing, not just the interest rate.

Types of business loan interest rates: fixed, variable and discounted rates

Business loans in the UK typically come with different types of interest rate structures. Understanding how each works can help you choose the right option for your business needs.

Fixed interest rates

A fixed rate stays the same for the entire loan term. This means your monthly repayments are predictable, making it easier to plan and budget.

Fixed rates protect you from market changes, if interest rates rise, your rate stays locked. However, if rates fall, you might end up paying more than the market rate. Many businesses value the certainty that fixed payments offer as this is key for financial planning.

Variable interest rates

A variable rate can rise or fall over time based on market conditions or a benchmark, such as the Bank of England base rate.

If the base rate increases, your repayments are likely to go up. If it falls, you could benefit from lower repayments. Variable rates often start lower than fixed rates, as they carry more risk due to potential changing costs over time.

Discounted rates

Some lenders offer discounted rates, a type of variable rate that’s temporarily set below their standard rate or a benchmark like the base rate.

For example, a lender might offer 1% below the base rate for the first year. While this can save money early on, the rate is still variable and can increase later.

Lenders will communicate the rate structure before you sign a loan agreement. Many businesses choose fixed rates for stability. Others choose variable or discounted rates, hoping to save money if interest rates go down.

Before deciding, think about how well your business can handle changes in monthly repayments. You can talk to a Capitalise funding specialist to weigh the pros and cons and choose the option that best fits your business.

Factors that affect business loan interest rates

Knowing what lenders look for can help you estimate your interest rate and spot ways to improve it.

Lenders see a good business credit score as lower risk, which typically leads them to offer better rates.
Lenders prefer businesses that have been running successfully for a few years. If your business is new or has a limited track record, it may be seen as riskier. If you haven’t filed full accounts yet, Open Banking can give lenders access to your real-time bank data instead.
Strong, steady income shows that you can repay the loan. If your revenue is growing and your cash flow is reliable, you’re more likely to get a lower rate.
Offering assets (like property or equipment) as security can reduce your rate by lowering the lender’s risk.
Loans with longer repayment terms often come with lower annual interest rates, but you’ll pay more in total interest over time.
If your business already has a lot of debt, new borrowing might cost more or be harder to get.
The type of lender plays a role. High street banks usually offer lower rates but have stricter lending criteria. Alternative lenders may be more flexible, but their rates are often higher. That’s why it’s important to compare different offers to find the best fit for your business.

Typical interest rate ranges for business loans

Because of the variables raised, it’s hard to pin down an “average” business loan interest rate. Rates can range from as low as a few percent to well into double-digits. We can look at typical interest rate ranges for different types of business finance to get a sense of what to expect in the current market:

Finance type	Typical cost / rate	Details
Unsecured business loans	8% – 22% APR	These loans require no collateral. Rates depend on your credit profile and loan term. Because the lender takes on more risk, unsecured loans usually have higher interest rates.
Secured loans	4.9% – 15% APR	These loans are backed by assets such as property or equipment, which lowers the lender’s risk and results in more favourable rates. Commercial mortgages often fall on the lower end of this range.
Merchant cash advance	Factor rate: 1.1 – 1.4 (repay 110%–140%)	Instead of a traditional interest rate, MCAs use a factor rate. You repay the advance through a portion of daily card sales. It’s flexible, but the effective cost can be high.
Invoice finance	1.8% – 5% per invoice (often plus the base rate)	Lenders charge a fee on each invoice advanced, often tied to the base rate. This isn’t an APR, but reflects the cost of accessing invoice payments early. Better customer payment histories generally mean lower fees.
Hire purchase	8% – 27% APR	This is used to finance vehicles or equipment. The asset itself acts as collateral, helping keep rates moderate.
Asset refinance	5% – 10% APR	This involves borrowing against assets your business already owns. Because the loan is secured, rates are generally better than for unsecured borrowing.
Revolving credit facility	0.05% – 0.2% daily (~18%–73% APR)	Interest is charged only on the amount you use, for the time you use it. This flexibility comes at a higher cost compared to fixed-term loans. Always convert daily rates to annual terms when comparing.
Bridging loans	~1% per month (~12%+ per annum)	Bridging loans are short-term solutions, often used in property deals in time-sensitive scenarios. They are usually secured against the property and repaid in a short amount of time.
Development finance	5% – 16% APR	These loans fund property development or large projects. Rates vary based on the developer’s experience and the project’s risk. Funds are often released in stages and interest may be rolled up until project completion.

Keep in mind that the Bank of England’s base rate influences the interest costs. As of July 2025, the base rate is 4.25%, so virtually all loans will be priced at some percentage points above the base rate.

APR vs interest rate: understanding the true cost of a loan

Understanding the difference between interest rate, APR (Annual Percentage Rate), and “representative APR” can help you better understand the true cost of a loan offer.

An interest rate is the basic cost of borrowing, shown as a percentage of the loan amount. For example, a 10% simple annual interest rate means paying £10 annually for every £100 borrowed, excluding any fees.
APR (Annual Percentage Rate) gives a more complete picture. It includes the interest plus certain fees (like arrangement or origination fees) and accounts for compounding, providing a standardised yearly cost. It’s meant to help you compare loans on a like-for-like basis.
Note: For short-term or instalment loans, APR may not always reflect the “felt” cost, but it's still a relevant comparison tool.
Representative APR is the rate a lender advertises, and at least 51% of approved borrowers will receive it or better. It’s not guaranteed. Your actual rate depends on factors such as your business credit score.

Tips to get the best business loan interest rates

Every business owner wants the best possible interest rate when borrowing. While you can’t control market rates, you can take steps to make your business more appealing to lenders.

Start by building a strong credit profile. A good credit score and clean history show that you’re a reliable borrower. Reducing existing debt also helps. Even paying off part of a loan or closing unused credit lines can improve how lenders see your business. Offering security, such as property or a business asset, can also lead to lower interest rates by reducing the lender’s risk. It’s also important to shop around, as different lenders can offer very different rates for the same business. At Capitalise, we help by connecting you with over 130 lenders to find the right match. Plus you will receive support from a dedicated funding specialist. They will break down the full cost of every offer you receive, so you understand the costs to help you make a clear and confident decision.

Business loan interest rates: everything you need to know