Small Business Loan Interest Rate: Fixed or Variable?


Defined Tag: Business Loan Interest Rate.

Small businesses have many problems, and getting loans is only one of them. It's a big one, though. One of the most important questions is whether you can decide between a fixed rate and a variable rate loan...and if you can choose (some lenders specify one or the other for their small business loans; interest rates are generally lender's territory for small businesses), which one should you choose? Both have advantages; similarly, both have disadvantages, as well.

In general, we would say that a business loan interest rate should be fixed. Variable rates have many advantages; they can, for example, dip lower than a fixed rate loan would dream of going. BUT, they can also go higher, much higher, and in a way, taking out a variable rate loan is a gamble. Businesses don't like gambles. Similarly, a business loan interest rate should be safe, free from vagaries and nasty surprises. For this reason alone, even if there were no others, we would recommend that small businesses go with fixed rate rather than variable rate loans.

There are other reasons, however. For example, if your business loan interest rate never varies, then you'll be able to plan ahead much more effectively, already knowing what you'll have to pay out each month. Even on a personal loan or mortgage, this advantage is not something to be sneered at or taken lightly. But it becomes essential when what you can do two months from now is dependant on what you'll have to pay out next month. Planning is important in personal finances. It's essential for a business. A business loan interest rate that varies make planning more difficult; now you may be paying more, now less, but either way, you can't effectively plan. There are enough problems in the world to throw your plans out of whack without adding to them. A business loan interest rate will always be problematic. There's no need no make them more of a problem than they have to be.