Top 9 Factors Influencing Large Business Loan Rates

Securing a large business loan can be a daunting process, especially if you don’t have experience navigating its intricacies and challenges. 

From understanding the types of large business loans to their unique characteristics, rates, and requirements, you may need to do some due diligence in order to make the best financial decision for your business.

In this article, we will discuss some of the key factors influencing large business loan rates, and how you can use them to your advantage to secure the right financing for your company.

Whether you are looking for a large business loan to capitalize on new market opportunities, finance major purchases, or manage your fluctuating cash flows, understanding the details of large business loans will help you prepare better for the application process. 

Creditworthiness

The first factor that influences large business loan rates is your business’s creditworthiness. It measures your ability to repay the loan, indicating the perceived risk for the lender. The more creditworthy you are, the lower the risk for the lender, which translates to lower loan rates.

In other words, lenders are willing to offer you higher loan amounts and better rates if you are seen as a low-risk borrower. But how can you prove that you are one? Let’s take a look:

• Strong business credit score 

The exact requirements will depend on the lender and the type of loan that you are applying for. However, the general guidelines are above 80 for Dun & Bradstreet (PAYDEX Score), above 75 for Experian Business, and above 660 for Equifax.

• Good personal credit score 

When considering large business loan rates, another factor that lenders will assess in order to evaluate your creditworthiness is your personal credit score. A FICO score of above 670 is considered good, but you may get better rates if your score is above 740.

On the scale of VantageScore, be prepared to show a score of at least 661, but scores in the range of 781 to 850 will give you significantly more favorable conditions. 

• Financial performance 

In order to determine your creditworthiness, lenders will also look at your financial statements to assess the profitability of your business, as well as its revenue stability and cash flow. 

The stronger your financials, the more likely you will be to cover your loan payments. Since the risk of defaulting is reduced, you will most probably get better rates. 

• Debt-to-income ratio 

The debt-to-income ratio is one of the most important factors that lenders consider when it comes to large business loan rates. In other words, how much existing debt do you have relative to your income?

Ideally, you should aim for a DTI ratio of 30% to 40% or lower. If you can prove to the lender that you are generating sufficient income to cover your debt obligations comfortably, you will be considered more creditworthy. 

• Collateral offered  

Offering valuable collateral can mitigate the risk of the lender when borrowing large business loans, potentially leading to lower interest rates – as they will have a way to recover their funds if the loan is not repaid.

Some good examples of collateral that hold significant value and can be easily liquidated include: commercial real estate properties, land, high-value equipment, inventory, and accounts receivable, among others. 

Market Conditions

Another factor that influences large business loan rates are market conditions. For example, at times when inflation is high, interest rates may rise to allow lenders to maintain their profit margins. This includes the anticipation of future inflation.

The interest rate environment also matters – central banks, like the Federal Reserve in the U.S, set benchmark interest rates to manage economic growth. When these rates are low, borrowing costs tend to decrease, making loans more affordable. 

Credit market conditions, economic growth, and global economic events all add up to the constantly changing winds of the market, causing a direct impact on both business and personal loan rates.

Financial Health

In addition to showing a good personal and business score, there are other financial health factors that will play a role in the large business loan rates that you can get from your lender, such as:

• Revenue – do you have consistent and growing revenue streams?
• Profitability – does your business have healthy profit margins?
• Cash flow – do you have liquidity to meet your current and future debt obligations?
• Operating history – can you prove a long and successful operating history?
• Experience – do you have experience in your industry?

Showing your lender that your business is not only in a good financial position, but also has proven experience and operating history, is key for increasing trust and reducing risk – which can potentially get you much better large business loan rates.

Collateral

As we mentioned earlier, providing collateral is a great way to secure a large business loan, and sometimes, it is obligatory – especially if you are applying for a secured line of credit. Some common examples of collateral include:

• Commercial real estate properties
• Heavy machinery
• Construction equipment
• Finished goods & raw materials
• Accounts receivable
• Intellectual property, such as patents or trademarks

How do I determine what collateral to provide for a large business loan?

To determine what collateral to offer for a large business loan, assess your assets’ value, liquidity, and relevance to your business operations. Choose assets that you can afford to risk, have a clear title, and meet the lender’s requirements. 

Consider the loan amount, terms, and how vital the asset is to your daily operations. Prioritize high-value, easily liquidated assets like real estate or equipment that won’t disrupt your business if used as collateral.

Providing security for the repayment of a loan is key to getting lower large business loan rates.

Loan Amount 

Another key factor that influences large business loan rates is the loan amount that you are looking to borrow for your business needs. The higher it is, the more risk there is for the lender because there is more capital at stake.

As a result, lenders might charge higher interest rates to offset this increased risk. 

However, economies of scale can also come into play; for substantial loans, a lender might offer lower rates because the administrative costs of processing the loan are spread over a larger amount, making the loan more profitable even with a lower interest rate. 

Loan Term

In addition to the loan amount, the loan term also matters when it comes to large business loan rates. Short-term loans (repaid within 1 year or less) usually have higher annual interest rates compared to long-term loans.

On the other hand, long-term loans (from one year up to several years) usually have lower annual interest rates as the repayment is spread over more years. 

However, keep in mind that there is a risk adjustment when it comes to loan terms – long-term loans are perceived as riskier because of the uncertainty over extended periods, which means that there could be stricter lending criteria or additional security needed.

Risk Assessment

Risk assessment is another factor in calculating large business loan rates. It evaluates the likelihood that a borrower will default on a loan, and it’s critical in determining whether to extend credit and under what terms. 

When analyzing the risk, lenders will take a look at various factors, from your credit history and financial health to your business’s cash flow and the collateral value you’ve provided. 

However, external factors such as industry risks, market trends, as well as local and global economic conditions, are also taken into account.

Legal And Regulatory Environment

Large business loan rates are also influenced by the current legal and regulatory environment, which includes:

• Capital requirements – If capital banks need to hold a larger amount of capital according to the regulations, they may apply stricter capital requirements and cause lenders to charge higher interest rates.
• Interest rate caps – Unfortunately, predatory lending practices are still quite common, which means that some jurisdictions implement caps on interest rates to protect borrowers. 
• Banking regulations – Certain banking regulations, such as those related to fair lending and consumer rights, can influence the operational costs and risk management practices of lenders, which may affect interest rates.
• Consumer protection laws – Under certain consumer protection laws, borrowers are protected from the impact of administrative costs of lending. This may lead to lenders adjusting their interest rates to offset these costs.
• Lending standards – Legal and regulatory frameworks often standardize lending practices, including risk assessment. Tighter lending standards can lead to more rigorous credit evaluations, potentially increasing rates for borrowers deemed higher risk.

Negotiation

Last but not least, your ability to negotiate can have an important impact on large business loan rates and terms. If you have a strong creditworthiness, you are in a better position to negotiate lower rates. 

On the other hand, by applying to multiple lenders and obtaining various offers, you can compare rates and terms. This information can be used as leverage in negotiations, as lenders might be willing to match or beat competitors’ offers to win or retain your business.

Applying to multiple lenders at the same time is extremely easy with National Business Capital. With a single application, you can get access to exclusive offers from our lender relationships within minutes. 

Getting the Best Large Business Loan Rates with National Business Capital

If you are looking for the right lender for a large business loan, look no further than National Business Capital. 

With $2+ billion financed since 2007, multiple awards, and an experienced team of Business Finance Advisors, we have everything you need to find the best financing options for your project.

Are you ready to get started? Apply here.