What is Variable Interest?

Variable interest, also known as “floating interest” is a type of interest on a loan that fluctuates over time, due to its nature of being based on an underlying benchmark interest rate or index. Loans with a variable rate are like a double edged sword—they benefit from lower payments when the underlying interest rate market is in decline, but when rates rise the monthly payments spike.

For early-stage companies, when funds are tight, fixed interest loans or revenue based financing options are much more appropriate, because they limit the risk of defaulting.

Is a variable interest rate good?

A variable interest rate can be good if rates stay low or decrease, because your payments may be cheaper. However, it can be risky since your rate can rise, increasing your costs over time.

What does 4% variable mean?

A 4% variable rate means the interest starts at 4% but can move up or down based on market conditions. Your payments may change depending on how the underlying rate adjusts.