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Is a Small Business Loan Variable or Fixed

Small businesses often focus on finding the best interest rate when seeking a loan, but they may forget to consider whether to choose a fixed or variable-rate loan for their business. This decision depends on the lender’s offerings and the current economic climate.

One type of loan is a fixed-interest rate loan, which comes with an interest rate that does not change. Once the loan is approved and processed, the borrower’s monthly installment will remain the same for the life of the loan. This allows the borrower to budget and knows the total cost of the loan. However, if market rates decrease, the borrower will not see any changes in their interest rate.

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Small Business Loans

Small Business Loans are the money that a borrower takes from the bank or an online lender. He can use that money to buy equipment, expand, and advertise his brand.

Several small business loans are available in the market, but the major thing is the interest you want. For instance, you must decide on one of them, fixed or variable.

So, let’s discuss both one by one.

Fixed Interest Rate Loans

Fixed-interest rate loans come with interest that doesn’t change. Once you approve the loan and it is processed, your monthly installment will be the same for the rest of your life.

The benefit of this is that the borrower can fix the loan amount of money they can pay each month according to their budget. They also know how much they will pay for the loan overall.

The downside of the fixed-rate loan is that if the market changes and the banks or online lenders start lending at lower interest rates, borrowers won’t see any significant changes.

So, when their mates borrow at lower rates, they will continue with the same interest rate. But if you see the opposite side, if the interest rates go higher, the borrowers with the fixed rate will be protected against any other market swing.


For example, if you borrow $50,000 to purchase any equipment for your business, the repayment period will be five years. But the interest rate will be 6%.

Your monthly installment will be $966.64, and you will pay $7,998.40 in interest. It means that the total cost of your loan will be $57,998.40.

Pros of Fixed Rate Loan

  • It is easy to budget.
  • It is not affected by market changes.
  • The borrower knows the exact cost of their loan.

Cons of Fixed Rate Loan

  • These have higher interest rates as compared to other loans.
  • If the rates go down, the borrower must face some problems.

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Variable Rate Loan

On the other hand, a variable interest rate loan fluctuates due to market changes, resulting in different monthly payments. This type of loan can be challenging to budget for, as the payments increase when interest rates rise. Additionally, the total cost of the loan is not known until the loan is fully paid off.

There are different types of variable interest rate loans, such as SBA loans, equipment loans, microloans, merchant cash advances, and invoice financing loans. Each type has its own pros and cons, and it is essential for small business owners to research and choose the loan option that best fits their needs.


If we see the previous example of a fixed interest rate loan, he has taken a loan of $50,000 with a repayment year of five years. And in which the borrower knows the total amount of the loan.

But, in the same condition, if the borrower must decide on a variable interest rate, he will get a 5% interest rate. This can go up or down throughout the repayment period.

Types of Variable Interest Rate Loans

As mentioned above, a small business loan comes with variable interest rates long term vs short-term. A few of them are as follows.

Borrowers can decide on any of them that suits them well.

Pros of Variable Interest Rate Loan

  • When the total rate goes down, the people who take variable interest rate loans will experience lower rates.
  • The rates are usually lower than the fixed interest rates.

Cons of Variable Interest Rate Loan

  • When rates go up, then the monthly payments also go up.
  • It can make managing the budget difficult.
  • Borrowers don’t know the total cost of the loan.

Furthermore, it’s important for business owners to have a good credit history, as it will help them to secure a loan with the lowest rate possible. However, even with excellent credit, rates can rise, so it’s essential to be aware of loan terms and understand how they can affect monthly payments and cash flow.

A Quick Wrap-Up!

In summary, small business owners should consider both fixed and variable-rate loans and decide the option that best fits their needs and budget. It’s also essential to understand loan terms and how they can impact monthly payments and cash flow, as well as to have a good credit history to secure the lowest rate possible.

Why BitX Funding

BitX Funding is an online lender that offers a range of loan options to businesses to help them fulfill their financial needs. Our team of financial experts can help you choose the best loan for your business, whether you have collateral to offer or are looking for a risk-free option.

We are dedicated to providing excellent service to our customer base and are ready to assist you in finding the right loan solution for your business. Contact us today at 203-763-1430 to learn how BitX Funding can help you get access to startup loans.

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