When it comes to taking out a loan or other type of financing, business owners must decide between fixed and variable interest rates. The choice has significant implications for the cost of borrowing money and repayment terms. Understanding both types of interest rates is essential for making an informed decision that best suits your financial needs. In this blog post, we will discuss what business owners should know about fixed vs variable interest rates so they can make the most informed decision possible.
Fixed Interest Rates
Fixed interest rates are set at a predetermined rate that never changes over the life of the loan. This rate is usually higher than variable interest rates, but borrowers will know exactly what their monthly payments will be over the entire term. Fixed interest rates provide more stability for those who don’t want to risk having their payments increase due to market volatility.
Variable Interest Rates
Variable interest rates, on the other hand, are based on a benchmark rate such as the prime rate or LIBOR. These rates can fluctuate over the life of the loan, so borrowers have no way of predicting what their payments may be in the future. This makes variable interest rates more unpredictable but also potentially less expensive than fixed interest rates.
Before you decide which type of rate is right for you, consider your own cash flow needs. If you don’t have the financial resources to handle a potential increase in payments, then a fixed interest rate might be your best bet. On the other hand, if you are comfortable with some level of risk and can handle an unexpected increase in payments, then a variable interest rate might be the way to go.
Whatever your decision may be, it’s always a good idea to speak with a financial advisor before you make any decisions about taking out financing for your business. A professional can help you assess your individual situation and choose which type of interest rate is best for your specific needs. With the right advice, you can make an informed decision that will help you save money and keep your business running smoothly. Speed Funding offers business solutions with both fixed and variable interest rates. Contact our team today to get business financing tailored to your needs.