Interest rates have moved a bit over the past six months, both up and down. As is the case with a home loan, you have the option of choosing business finance at a fixed or variable interest rate.
You can just fix part of your loan. Which one is best for your business will depend upon the specific needs of your business.
As a general rule fixed loans are great for people who want certainty. If you want to know that your repayments will be a certain amount each week or month for a certain timeframe then fixing may be an option for you.
If you do fix, make sure you know the rate to which the loan will revert. Many lenders put you into a high rate once the fixed term expires. A colleague of mine calls this the “revert rort”.
One common misconception about fixed rate loans is that you lose the flexibility of being able to make extra payments and use redraw facilities. Not all fixed rate loans are the same so it pays to shop around. Making extra payments to a loan with a redraw facility attached is an effective way of repaying your loan faster and saving you money. There may be fees involved for this, particularly if you make more than a certain percentage of your original loan amount in extra payments, so just make sure the fees are less than the interest you save yourself.
Greg Taylor is Chief Financial Officer for the Hunter-based Greater Building Society.
This article appeared in the Newcastle Post 28 March 2012