Welcome back to the BCRS blog! This week I will be talking about a fixed and variable interest rate for business loans.
What is a variable rate business loan?
A variable interest rate (sometimes called an “adjustable” or a “floating” rate) is an interest rate on a loan that fluctuates over time because it is based on an underlying benchmark interest rate or index that changes periodically, such as base rate.
A variable-rate loan with most lenders will fluctuate during the term of the loan depending on the market rate at the time. This means your monthly repayments will go up or down dependent on the market activity.
Variable rates often start on the lower side compared to fixed rate loans which can be helpful for SMEs to control their cash flow. In the current climate, getting a variable rate loan may be a preferable option, as it is likely that rates will continue to remain quite low. This means a five-year variable rate loan is likely to be cheaper than a similar five- year fixed rate loan.
What is a fixed rate business loan?
A fixed interest rate is an interest rate on a loan that stays the same during the life of the loan. Having a fixed payment to work with every month can make life easier for you as a business owner. It can be hard to run a business and not know what your loan payment is going to be from month to month.
Working on a budget means that you ideally need to know what your payments are going to be. If you do not know that, everything can become more difficult to work with.
A fixed interest loan can provide peace of mind, because there is no uncertainty of monthly repayments. You have a consistent interest rate from the very beginning. While it may not have been the lowest rate in the market at the time, you know that it is not going to go up from one year to the next. Your loan will be at that exact rate from now until the loan is paid off.
Overall, in the current climate a business is likely to pay less interest on a variable rate loan than a fixed rate loan. However, you need to make sure you can afford the repayments if the rates should increase.
At BCRS we do things differently. With our interest rates you get the best of both worlds!
We charge an interest rate margin of between 8% – 18% above the current variable Bank of England base rate of 0.25% (correct as of March 2020). We keep the repayments the same during the term of the loan. When it comes to making the final payment, the repayment will be adjusted accordingly, if the rate has gone up your final repayment will increase, or the loan term will be extended. If the rate has gone down your final repayment will be less, or you will pay the loan off early.
Are you an SME in and around the West Midlands looking to lend between £10,000 to £150,000 with a term of one to seven years? Head to www.bcrs.org.uk to estimate your monthly repayments using our loan calculator.
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Published by – Lauren McGowan – Digital Marketing Assistant