How to Actually Compare Business Loan Rates Between Lenders
Closer Capitalist·September 15, 2026·Funding Options
You can’t compare business loan offers by lining up the headline rate each lender quotes, because they aren’t quoting the same kind of number. One lender’s “9%” and another’s “1.3 factor rate” and a third’s “interest rate plus a 3% origination fee” all describe different math, and the only way to compare them honestly is to convert every offer onto the same scale before you decide.
Start with APR, because it’s the only number built for comparison
APR exists specifically to solve this problem. The Consumer Financial Protection Bureau defines APR as the interest rate plus additional fees the lender charges, expressed as one annualized cost. A bare “interest rate” leaves out origination charges, draw fees, and other costs a lender tacks on, which is exactly how two loans with similar-sounding rates end up costing noticeably different amounts.
NerdWallet’s guide to business loan rates and fees is blunt about the fix: compare the APR, not the sticker rate, across every loan you qualify for, since APR is the only figure that folds fees into the number instead of hiding them below it. Those fees aren’t trivial either. Origination fees on business loans commonly run 1% to 5% of the loan amount, occasionally up to 10%, and lines of credit can layer on draw fees and maintenance fees on top of the quoted rate.
Factor rates need a conversion, not a comparison
A factor rate isn’t an interest rate at all. Bankrate’s breakdown of factor rate vs. interest rate explains it as a flat multiplier, typically 1.1 to 1.5, applied once to the amount borrowed. It doesn’t compound, and unlike APR, it generally doesn’t shrink if you repay early. A $50,000 advance at a 1.35 factor rate means $67,500 owed, full stop, whether that’s repaid in 4 months or 12.
That flat structure is why a factor rate has to be converted to an annualized-equivalent APR before it means anything next to a bank quote. The same 1.35 factor repaid fast can equate to well over 60% APR; stretched out, the annualized number drops even though the dollar cost never does.
What the actual ranges look like right now
| Lender type | Typical APR (2026) |
|---|---|
| Traditional bank term loan | ~6.7% to 11% for well-qualified borrowers |
| SBA 7(a) loan | ~9.75% to 14.75%, depending on rate type |
| Bank business line of credit | ~7% to 7.9% |
| Online / alternative lender term loan | ~14% to 45%+, wider for weaker files |
| Factor-rate products (MCA-style) | Factor 1.1-1.5, roughly 40% to 350% APR-equivalent |
Figures compiled from Bankrate’s average business loan rate data and NerdWallet’s rate guide linked above.
Four questions that get you an apples-to-apples answer
- What’s the APR, not just the rate? If a lender won’t answer directly, calculate it yourself before you compare, or treat the reluctance as information.
- What fees sit outside the quoted number? Origination, draw, underwriting, and maintenance fees can all apply on top of a rate that looked competitive in isolation.
- Does early repayment lower the cost? APR-based loans typically do; factor-rate products typically don’t. That single difference can change which offer is actually cheaper for how you plan to use the money.
- What’s the total dollar cost over the term you’ll actually use? A lower rate over a longer term isn’t automatically cheaper than a higher rate over a shorter one. Run the total dollars, not just the percentage.
Closer Capital’s business line of credit runs 12% to 45% APR on $25,000 to $500,000, and its term loan program prices separately depending on the file. Both come with pre-qualification that runs with no credit pull, so you can see your actual rate range and compare it against a bank or SBA quote before committing to either. See what you qualify for, and if you’re deciding between a lump sum and a revolving line for the same need, the term loan vs. line of credit comparison breaks down which structure fits which use case.
FAQs
What’s the difference between APR and interest rate on a business loan?
The interest rate reflects only the cost of borrowing the principal. APR adds in origination fees, underwriting fees, and other lender charges, then expresses the total as one annualized percentage. Two loans with the same interest rate can have meaningfully different APRs once fees are factored in, which is why APR is the number to compare, not the interest rate alone.
How do I convert a factor rate to an APR?
Roughly, subtract 1 from the factor rate to get the total cost, divide that by the number of months you expect to take to repay, then annualize the result. A 1.3 factor rate repaid over 6 months lands in the ballpark of 60% to 70% APR-equivalent, even though the factor rate itself never changes. The faster the actual repayment, the higher the annualized number looks.
Do lower advertised rates always mean a cheaper loan?
No. A lower rate paired with a longer term, a large origination fee, or extra draw and maintenance charges can end up costing more in total dollars than a slightly higher rate with no added fees. Always compare total cost of capital over the term you’ll actually use, not just the headline percentage.
Why do online lenders charge higher rates than banks?
Online and alternative lenders generally approve faster and accept weaker credit profiles or shorter time in business, which means they’re pricing in more risk and less time to underwrite thoroughly. Banks trade a lower rate for a slower, more document-heavy process and a higher bar for approval.
Is it worth applying to multiple lenders to compare rates?
Yes, as long as prequalification doesn’t involve a hard credit pull. Closer Capital’s prequalification, for example, runs with no credit pull, so comparing its rate range against another lender’s offer costs nothing and doesn’t affect your credit score either way.
