If you’ve been researching ways to fund your business, you should have a checklist of important factors to consider. Find a lender who is completely transparent and determine the answers to these questions:
- What is the true cost of the loan? (Look to the loan constant to calculate)
- What are ALL fees? (Origination fee, application fee, guaranty fee, etc.)
- How much money can you borrow?
- How long will you have to repay what you’ve borrowed? (Loan term)
- Is there an early payment penalty?
- What is the APR?
Finally, is the APR fixed or variable? Here’s information you need to know about both options.
Definition of a Variable Rate Loan
Investopedia defines variable rate loans as loans with an interest rate that will fluctuate over time in line with prevailing interest rates. They generally have lower starting interest rates than fixed rate loans, but the interest rate and payment amounts can raise or lower over time. Sometimes variable rate loans are known as floating rate loans. SmartBiz offers a variable rate on SBA loans.
Here are the current rates for an SBA loan through banks in the SmartBiz network (as of March 2020):
INTEREST RATES – 4.75% – 7.00%.
(SBA loans offered from banks in the SmartBiz lending network have a variable rate of Prime Rate plus 1.5% to 3.75%)
Advantages of a Variable Rate Loan
The overall cost of variable rate loans is usually lower that a fixed rate loan. Disadvantages of a Variable Rate Loan
If interest rates drop significantly, you’ll continue to pay the higher rate. A fixed rate loan can be harder to obtain from a lender due to higher payments. (Note: Long terms equal much lower payments than other term length options). If rates rise, payments won’t increase.
Definition of a Fixed Rate Loan
Fixed rate small business loans have an interest rate that does not change during the life of a loan, which means you pay the same amount each month.
Advantages of a Fixed Rate Loan
You will know exactly the total interest that you’ll pay over the life of the loan. According to Investopedia, a fixed rate is attractive to borrowers who are concerned that rates will rise, increasing interest expenses.
Disadvantages of a Fixed Rate Loan
A loan with a variable rate usually offers lower introductory rates than fixed-rate loans. If interest rates go lower, you’ll miss out on the lower cost and ultimately lower payments.
In conclusion, take a look at the entire loan package and determine the best fit to strengthen your finances. Seek out a lender with stellar customer service. You’ll want to work with a knowledgeable loan specialist who can clearly and honestly answer all of your questions. Check reviews on platforms like TrustPilot before you pick the company you want to work with.