Variable Rate Business Loans

Variable rate business loans are risky because they fluctuate based on the prime interest rate. While a business may get a good rate quote when the national rate is fairly low, if the national prime interest rate goes up, so will the interest on the loan. This may leave a business with very high monthly loan payments. Consider these options to reduce the risk:

Opt for a Fixed Rate

A fixed rate loan must stay consistent over time based on a contract with the business lender. Regardless of what happens to the national interest rate or to the business's financial profile, the rate cannot adjust higher or lower. 

Set Limits on the Loan Adjustment

Variable rate loans can be controlled if limits to the business loan interest rate can be set. For example, a contract can stipulate the loan can only go a certain percentage over its initial rate. A loan may also be set up so the interest rate will never go more than a certain percentage over the national rate.