Small Business Administration (SBA) loans are a popular choice for many entrepreneurs and small business owners looking for funding. These loans are guaranteed by the SBA, which means that lenders are more willing to lend money to small businesses. However, it is important to understand that SBA loans with variable interest rates can be very expensive in today's market. Here are three things you should know about these loans before applying.
Variable interest rates can increase your monthly payments Unlike fixed interest rates, variable interest rates can change over time. This means that your monthly loan payments can increase if interest rates rise. In today's market, interest rates are at historic lows, but they may increase in the future. If you take out an SBA loan with a variable interest rate, you need to be prepared for the possibility of higher monthly payments.
You may pay more in interest over the life of the loan When you take out an SBA loan with a variable interest rate, you may end up paying more in interest over the life of the loan compared to a fixed interest rate. This is because variable interest rates can increase over time, which means that you'll pay more in interest charges. In today's market, where interest rates are on the rise, it may be tempting to choose a variable rate loan to take advantage of lower rates. However, you should carefully consider the potential long-term costs before making a decision.
There are ways to manage the risks of variable interest rates If you do decide to take out an SBA loan with a variable interest rate, there are ways to manage the risks. One option is to choose a loan with a cap on the interest rate. This means that even if interest rates increase, your rate will be capped at a certain level. Another option is to refinance your loan if interest rates increase significantly. By refinancing, you can lock in a lower fixed interest rate, which can help you save money over the life of the loan.
In conclusion, SBA loans with variable interest rates can be very expensive in today's market. Before applying for one of these loans, it is important to understand the risks and potential costs. By carefully considering your options and managing the risks, you can make an informed decision that is best for your business. Call us today to find out how much you can save.
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