What Is Interest Rate? | Business Lending Glossary

Definition

The percentage of the loan principal charged by a lender annually for the use of borrowed money.

Explanation

Interest rates are expressed as an Annual Percentage Rate (APR) for comparison purposes, though actual charges may be monthly, daily, or structured as a factor rate for short-term products. Rates are influenced by the borrower's credit profile, loan term, collateral, and prevailing benchmark rates like the Prime Rate or SOFR.

Example

A business takes a $100,000 term loan at a 9% annual interest rate, paying $9,000 in interest over the first year — though amortization means earlier payments carry more interest than later ones.

Why It Matters

Even a 2–3% difference in interest rate translates to thousands of dollars over a multi-year loan, making rate comparison and negotiation one of the highest-leverage actions a borrower can take.

Frequently asked questions

What interest rate can I expect for a business loan?

Rates range widely — SBA loans run 10–15%, bank term loans 7–12%, online lenders 15–45%, and MCAs are typically expressed as factor rates equivalent to 40–150% APR depending on term length.