SBALenders.com released the results of its annual study of best states for small business loans. The report shows that rural states tend to charge much lower interest rates on SBA loans. SBA loans are a good proxy for small business loans, as typically small businesses who cannot qualify for commercial loans will apply for SBA loans, which allows more flexible payment options and lower down payments.
This study demonstrates the best place for a loan may not be large urban banks but rather smaller, rural banks. The average rural population (rural as defined by the Census Bureau) for the ten lowest costs states was 34%, whereas the cost for the ten highest states was on 11% rural. The interest for a $1M loan over a term of 10 years in Mississippi averaged $331,041 versus $434,462 for a borrower in New Jersey, an incredible savings of $103,421 over the term of the loan.
The most affordable small business lending state in 2017 was Mississippi. Average interest rates on all SBA 7(a) loans in Mississippi last year was 5.98%. Mississippi was the only state with rates below 6%. Top banks in Mississippi were Trustmark National Bank, Covington County, and Bank Plus.
The rankings for all states (based on average interest rates charged to borrowers):
| 2017 Rank | 2016 Rank | State | Rural Pop | Int Rate | Avg Loan |
|---|---|---|---|---|---|
| 1 | 3 | Mississippi | 51% | 5.98% | $563,986 |
| 2 | 5 | Oklahoma | 34% | 6.19% | $531,118 |
| 3 | 7 | Indiana | 28% | 6.20% | $530,307 |
| 4 | 10 | Arkansas | 44% | 6.21% | $760,258 |
| 5 | 4 | Michigan | 25% | 6.22% | $397,830 |
| 6 | 11 | Wisconsin | 30% | 6.22% | $458,088 |
| 7 | 16 | Nebraska | 27% | 6.27% | $361,308 |
| 8 | 9 | Kansas | 26% | 6.30% | $460,762 |
| 9 | 14 | Ohio | 22% | 6.40% | $369,013 |
| 10 | 17 | West Virginia | 51% | 6.42% | $481,461 |
| 11 | 21 | North Dakota | 40% | 6.44% | $276,440 |
| 12 | 29 | Minnesota | 27% | 6.45% | $373,125 |
| 13 | 1 | Vermont | 61% | 6.45% | $148,162 |
| 14 | 13 | Kentucky | 42% | 6.46% | $435,886 |
| 15 | 23 | Washington | 16% | 6.51% | $570,807 |
| 16 | 18 | Missouri | 30% | 6.53% | $491,784 |
| 17 | 25 | Georgia | 25% | 6.53% | $754,015 |
| 18 | 22 | Iowa | 36% | 6.54% | $405,031 |
| 19 | 19 | Illinois | 12% | 6.57% | $501,383 |
| 20 | 15 | Louisiana | 27% | 6.59% | $569,774 |
| 21 | 20 | South Dakota | 43% | 6.59% | $389,143 |
| 22 | 32 | Montana | 44% | 6.61% | $434,795 |
| 23 | 12 | Rhode Island | 9% | 6.71% | $192,600 |
| 24 | 24 | Tennessee | 34% | 6.71% | $607,639 |
| 25 | 34 | North Carolina | 34% | 6.75% | $638,804 |
| 26 | 37 | California | 5% | 6.76% | $587,230 |
| 27 | 8 | Connecticut | 12% | 6.79% | $305,939 |
| 28 | 31 | Idaho | 29% | 6.79% | $324,277 |
| 29 | 35 | Oregon | 19% | 6.80% | $535,244 |
| 30 | 2 | Maine | 61% | 6.81% | $221,885 |
| 31 | 47 | New Mexico | 23% | 6.85% | $423,637 |
| 32 | 43 | Colorado | 14% | 6.90% | $529,465 |
| 33 | 6 | New Hampshire | 40% | 6.92% | $181,728 |
| 34 | 36 | Arizona | 10% | 6.98% | $526,248 |
| 35 | 28 | Pennsylvania | 21% | 6.99% | $395,238 |
| 36 | 41 | Texas | 15% | 7.00% | $548,469 |
| 37 | 39 | Utah | 9% | 7.00% | $474,981 |
| 38 | 44 | Virginia | 25% | 7.04% | $532,498 |
| 39 | 48 | Alabama | 41% | 7.12% | $496,418 |
| 40 | 40 | South Carolina | 34% | 7.13% | $674,572 |
| 41 | 46 | Wyoming | 35% | 7.15% | $393,424 |
| 42 | 33 | Washington DC | 0% | 7.19% | $507,337 |
| 43 | 27 | Massachusetts | 8% | 7.20% | $188,519 |
| 44 | 49 | Nevada | 6% | 7.24% | $461,813 |
| 45 | 51 | Alaska | 34% | 7.26% | $600,024 |
| 46 | 38 | Florida | 9% | 7.29% | $452,270 |
| 47 | 50 | Hawaii | 8% | 7.34% | $260,459 |
| 48 | 26 | New York | 12% | 7.39% | $279,310 |
| 49 | 42 | Maryland | 12% | 7.39% | $435,836 |
| 50 | 45 | Delaware | 17% | 7.65% | $341,811 |
| 51 | 30 | New Jersey | 5% | 7.66% | $359,595 |
The takeaways from the study for entrepreneurs:
- Bigger not always better – Small and medium sized banks are very competitive
- Banks in rural states often provide very attractive rates compared with their urban peers
Methodology of study
SBALenders.com tabulated its results based on SBA loan transactions data from 2016 and 2017 from the SBA’s 7(a) for loans that were 7 years or longer. Other fees, expenses, and charges outside of the interest rate were not included in the tabulations.
SBALenders.com is a resource for entrepreneurs to find the best match for commercial loans and SBA loans. SBALenders.com tracks all loans processed through the SBA 7(a) loan program and provides detailed reports on loan trends so borrowers can quickly find a bank that is a good fit for their financing needs.