Different types of interest
Fixed interest rate
Fixed interest, or tied rate, on business loans remains unchanged over the loan period - regardless of market fluctuations, you maintain the same interest rate, making your financial planning more predictable.
Benefits: It offers a sense of security and simplicity in the budget, as you know exactly how much you'll pay each month.
Cons: When market interest rates fall, you miss the opportunity to pay less. In addition, the fixed interest rate can sometimes be higher from the start compared to the variable rate.
Variable interest rate
Variable interest rates on business loans change with the market, which can lead to both lower and higher payments over the loan period, depending on market fluctuations.
Impact on payments: This means that your monthly costs may vary, which can be an advantage when interest rates fall. On the other hand, when interest rates rise, your costs also increase, which can of course affect your operating cash flow.
Amortization and interest
Amortization is about how you repay the loan - either with equal repayment (equal amount each time) or annuity (same total amount including interest with each payment).
Equal repayment or annuity - which one is right for you? Equal repayment may suit companies that prefer a reduction in debt over time, while annuity may suit those who want an equal overall cost. The choice between these depends on your business cash flow and how you want to manage your payments.
Loan with interest ceiling
Are you looking for an option that mixes a bit fixed and variable? Then it may be advantageous for your company to consider a loan with an interest ceiling - this means that you, together with the bank or lender, determine a maximum interest rate for your variable interest rate. So that your interest rate will never exceed a certain limit, which can make it easier for you if you want to plan your expenses with a variable rate more effectively.
Effective and nominal interest rates - what's the difference?
When it comes to understanding what interest on business loans is, it's just as important to understand the difference between effective and nominal interest rates, as they offer different perspectives on the costs of your business loan.
Nominal interest rate is the base rate for your loan, without taking into account any additional costs or fees. It represents the basic cost of the loan and is expressed as an annual percentage.
Effective interest rates, on the other hand, offer a more complete picture. It includes not only the nominal interest rate, but also all additional costs associated with the loan — such as start-up costs, administrative costs and other administrative fees. Effective interest is calculated on an annual basis and provides a more accurate picture of the total cost of the loan.
For small entrepreneurs, it's important to look at both nominal and effective interest rates when considering a business loan. While the nominal interest rate can give a first impression of the borrowing costs, it is the effective interest rate that actually shows what you will actually pay.
Average interest rate on business loans
Overall, the average annual interest rate is between 4-9%. Larger banks can offer lower interest rates, thanks to lower borrowing costs, for example between 4-6%. Digital banks and new lenders usually have interest rates that start around 5-8% per annum.
In addition, as a small entrepreneur, you should consider the monthly fees associated with a business loan. These can range between 1-4% per month, equivalent to an annual interest rate of between 12-48%. It's important to remember that these numbers may be lower in practice, as many business loans are repaid early. Comparing interest rates is crucial to get an overview of the best options on the market, as interest rates can vary considerably. So remember to carefully evaluate all your options before deciding which loan is best for your business.
What factors influence your interest rate on the business loan?
Creditworthiness
Your creditworthiness acts as an assessment of your financial reliability. What are your company's income and turnover? Are there any arrears or debts with the National Bank of Belgium? A higher credit rating can lead to lower interest rates because it means a lower risk for the lender.
Improvement tips: To improve your credit rating, make sure you pay bills on time, reduce debt and avoid frequent credit checks.
Loan amount and duration
Larger loan amounts and longer maturities can often mean higher interest rates, due to the increased risk for the lender.
Find the right balance: Choose a loan amount and a term that suits your company's needs and payment capacity. A well-balanced strategy minimizes your costs while meeting your capital needs.
Security and personal deposit
Offering securities, such as real estate or inventory, can lower your interest rate because it reduces the risk for the lender. A personal deposit also increases your chances of lower interest rates.
Alternatives to limited security: If your company does not have sufficient security, consider improving other factors such as creditworthiness, or find alternative forms of financing that do not require traditional collateral.
Tips for getting an advantageous interest rate on business loans
Securing an attractive interest rate on your business loan can be crucial to the success of your business. Here are some tips to make this work to your advantage:
Compare your offers
Use online tools and comparison sites to compare interest rates. These platforms provide an overview of the various options on the market and help you make an informed decision.
Build a strong business plan
A compelling business plan can be your best friend at the negotiating table. It shows lenders that you have a solid plan to grow and manage the loan effectively. Lenders usually look for clarity, realism, and potential in your business plan — they want to see a thoughtful strategy, realistic financial forecasts, and a clear understanding of the market.
Apply for a loan from Qeld
For a business loan with lower costs, choose Qeld! The only cost for your Qeld loan is a fixed monthly fee, which is determined based on the size of the loan and the company's creditworthiness. Qeld offers business loans from €1,000 to €500,000, which can help you invest in new equipment, increase your marketing or expand your business. We have no hidden costs or binding time on your loan - with a simple one-minute application process, you can get quick and easy access to capital. If everything looks good, you can even get the money in your account the same day!
Definitely the right interest rate for your business loan
With practical tips and the right information, you're ready to find the best loan for your business. By creating a strong business plan, navigating between fixed or variable interest rates, and improving your company's creditworthiness, you can now make more informed decisions that benefit your company's financial health and growth. Forward, with this knowledge in your bag, you'll be better equipped to navigate the business loan world and offer your company the best chances of success. Good luck with your business!
Business Loan Interest Questions and Answers
Which bank is best for business loans?
The best bank for business loans varies depending on your company's needs and financial situation. That's why it's important to compare different banks and their offers to find the most cost-effective solution for your business.
How much does a business loan cost?
The costs of a business loan depend on factors such as the loan amount, the interest rate, the term and any additional costs. Average interest rates usually range between 4-8.85% per annum, depending on the lender.
Which bank offers the best interest rate on loans?
The bank with the best loan interest rate may vary depending on market conditions and your company's specific situation. It is therefore important to make a thorough comparison of the interest rates and conditions of different banks.
How does a business loan work?
A business loan works by borrowing a sum of money from a bank or lender, which must then be repaid with interest over an agreed period. The loan can be used for various business-related purposes, such as expansion, investments or to improve cash flow during a difficult period.
