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Are Small Business Loans Fixed or Variable?

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Most lenders offer small business loans that can have either a fixed rate or variable rate to appeal to a wider clientele of borrowers. A loan’s interest rate is often a major deciding factor when owners are looking for suitable financing for their situation. Choosing between a fixed and variable interest rate loan requires an assessment of various factors unique to the business.

Some lenders will charge a high standard rate to each borrower, regardless of their personal circumstances. When you apply to Lendified, we offer fixed-rate loans customized to your business profile. Our loan process is faster than that of a bank, and we don’t need any collateral or charge hidden fees. Getting a small business loan should be a simple, straightforward process, so we make it that way!

Below, we explain the differences between fixed and variable-rate loans to help you make an informed decision for your business.

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What is a Fixed-Rate Loan and a Variable-Rate Loan?

Payments can remain the same or change throughout the life of a loan. A fixed-rate loan has an interest rate that does not change over time. Payments are determined by the loan amount and interest rate provided by the lender, meaning that monthly payments will suddenly increase. 

With a variable-rate loan, the borrower makes payments that have a different interest rate each time during the life of the loan. It can be beneficial since the borrower can get a better interest rate over time as the market interest rates change.

Fixed-Rate Loan

Fixed-rate business loans can be cost-efficient if you lock in a low interest rate. However, a variable-rate loan would be the better option if the rate decreases after you’ve locked in a fixed-rate loan. With longer loan terms, borrowers face more interest rate risk, so fixed-rate loans offer less risk compared to variable-rate loans.

The biggest benefit of fixed interest rates is that your small business’s monthly payments won’t change each month. It provides stability, predictability, and peace of mind that some owners value more than variable interest rates. You will save time from consistently adjusting your budget and projections.

Variable-Rate Loan

Variable-rate loans usually have a lower introductory rate than fixed rate loans, making them more cost-effective, so long as interest rates remain low. However, variable-rate loans are riskier than fixed-rate loans, especially if the loan has a long term.

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How Small Businesses Can Choose the Right Loan

You know the loan options available to you. Now, you need to weigh a few factors to help you decide the best course of action for your business and finances. These factors include:

  • Loan Length: Short-term loans that have a variable interest rate can seem like a reasonable choice, however, all your diligent financial planning can go out the window if rates increase. For cost certainly, our construction business loans are designed for short terms to finance construction projects or construction companies for about a year.
    • Risk tolerance: Review your cash flow. If the risk of paying more interest later on during the loan’s life is too high for your small business, a fixed-rate loan is your best option. If you have a type of eatery, from a pub to a food truck, that’s generating a stable revenue, check out our restaurant loans.
  • Potential future interest rates: Take a look at the current market and inflation rates to determine which way the wind is blowing. With this information, the length of loan you need, and your business’s risk tolerance, you can make an informed decision about which type of rate you should get.

If you’re still not sure about the type of loan you need, our Lendified financial experts can provide you with more information on fixed and variable rates.

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Get a Small Business Loan with Lendified

Lendified’s small business loans come with a fast approval process, allowing you to get funds within days. Our advisors will review your business to find you the best interest rate structure for your needs and goals. 

Get started today!

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About the Author

Lendified

Lendified

Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.

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