For business owners who are seeking financing, interest rates play a significant role in finding the best loan option since they can impact borrowing costs greatly. When the Federal Reserve raises rates, the monthly payments for things like small business loans can become proportionately more expensive. For a small business owner who has to account for their business finances over the next several years, a seemingly small change can have major impacts.
It is common for interest rates to fluctuate over time due to many different factors, including economic conditions and federal monetary policies. While a certain amount of fluctuation is expected, extreme changes can cause some strain on business owners as their out-of-pocket costs begin to rise.
To help counter the impact of volatile interest rates, many lenders will offer rate structure options allowing the borrower to choose between a adjustable rate or a variable rate.
Adjustable-rate financing means the interest rate is locked in for a set period of time.
A variable rate means the interest rate can change quickly, often monthly or quarterly.
Each option comes with its own pros and cons. When interest rates are steadily declining, a variable rate may offer the most benefit. When interest rates are forecasted to rise, an adjustable rate could become the better option.
But what happens when the market is constantly changing? Over the course of the last year, interest rates have fluctuated greatly. When this is the case, it becomes increasingly hard for borrowers to know which rate structure will benefit them the most in the long run. Luckily, the SBA allows business owners to change rate structures once during the life of an SBA loan.
In response to the ever-changing interest rates, FNB Small Business Finance has rolled out some of the most flexible rate structure options available. Our rate structure options include:
- Variable quarterly for the life of the loan, rate resets every calendar quarter based on the then Prime Rate as published in the Wall Street Journal.
- 3-year adjustable for the life of the loan, rate resets every three years based on the then Prime Rate as published in the Wall Street Journal.
- 5-year adjustable for the life of the loan, rate resets every five years based on the then Prime Rate as published in the Wall Street Journal.
- 10-year adjustable for the life of the loan, only available for loans with a 10- year term.
- 3-year adjustable, converting to variable quarterly at the end of year 3 for the life of the loan.
- 5-year adjustable, converting to variable quarterly at the end of year 5 for the life of the loan.
- Variable quarterly for the first 3 years, converting to a 3-year adjustable for the life of the loan.
- Variable quarterly for the first 3 years, converting to a 5-year adjustable for the life of the loan.
Whenever your rate resets, the change is based only on the change in the Prime Rate. Your spread over Prime Rate will remain the same for the life of the loan.
Not only do these options help business owners save money as costs increase, but they can ultimately provide the best available solution for reaching a small business’s goals no matter the state of the economy.
When you’re ready to discuss financing options for your goals, reach out to a BDO at FNB Small Business Finance! We look forward to working with you to achieve new heights together.
