What Are the Pros and Cons of Fixed and Variable Business Loans?

When it comes to financing a major change in your business, you have the option of choosing between a fixed interest rate and a variable interest rate. Both rates depend on the market interest rate, the borrower's credit rating, the term of the loan, and the total amount of the loan. Although they are similar in some ways, fixed interest rates and variable interest rates have different advantages and disadvantages for the borrower. Variable-rate business loans typically offer a lower initial interest rate than a fixed-rate loan.

This means that initially, variable-rate loans will be more profitable than fixed-rate loans. However, variable-rate loans expose you to the risk of rising interest rates. On the other hand, fixed-rate small business loans have an interest rate that doesn't change over the life of the loan, meaning that you generally pay the same amount each month. With a fixed-rate loan, the interest you owe per month will only change if you refinance your loan.

In that case, you would pay less interest if your monthly payments were reduced and more interest if your payments increased. However, the real interest rate will remain the same. In addition, lenders are often willing to grant larger amounts through a variable rate loan because it reduces the interest rate risk that the lender has to assume. Borrowers who apply for an adjustable-rate mortgage loan benefit the most if they plan to move during the initial loan period, when interest rates are still extremely low.

When deciding between a fixed or variable rate loan, it is important to consider your own financial situation and goals. You should check with the lenders with whom you are considering applying for a loan to learn the terms and details of their products. We do not guarantee that the loan terms or rates listed on this site are the best terms or the lowest rates available on the market. Review the entire loan package and determine which option is best for strengthening your finances, and find a lender with excellent customer service. We hope this information was useful in helping you decide if a variable or fixed rate loan is best for your small business.

Connect2Capital levels the playing field for small business owners seeking capital from a responsible lender. The rates and terms of the loans presented on this Lantern site are subject to change when you contact the lender and may depend on your creditworthiness.