What Is a Fixed Rate? | Business Lending Glossary

Definition

An interest rate that remains constant for the entire duration of the loan term.

Explanation

Fixed-rate loans offer payment predictability — the monthly payment stays the same regardless of market rate movements. This simplifies budgeting and protects borrowers if benchmark rates rise. The trade-off is that fixed rates are often set slightly higher than initial variable rates to compensate the lender for rate risk.

Example

A physician practice takes a $200,000 equipment loan at a fixed 7.5% annual rate, paying the same $4,007 per month for 60 months regardless of Federal Reserve rate changes.

Why It Matters

Fixed rates eliminate payment volatility, making cash flow forecasting straightforward — especially important for businesses with tight margins and little room to absorb cost increases.

Frequently asked questions

Should I choose fixed or variable rate?

Choose fixed if you prioritize payment stability and expect interest rates to rise; choose variable if current rates are high, you expect them to fall, or you plan to pay off the loan quickly.