In the realm of business finance, choosing between fixed and variable rate loans can significantly impact long-term financial stability. While variable rates fluctuate with market conditions, fixed interest rates offer predictability and security over an extended period. Here’s why opting for long-term fixed interest rates can be advantageous:

  1. Stable Monthly Payments
    • One of the primary benefits of long-term fixed interest rates is predictable monthly payments. Borrowers know exactly how much they need to pay each month, providing a sense of financial security and easier budget planning. This stability is particularly valuable for individuals on fixed incomes or those who prefer certainty in their financial obligations.
  2. Protection Against Interest Rate Increases
    • Long-term fixed interest rates shield borrowers from rising interest rates in the future. If interest rates in the broader economy increase, borrowers with fixed-rate loans continue to pay the same rate they locked in initially. This protection can save substantial amounts over the loan’s duration, especially for large loans like mortgages.
  3. Financial Planning and Budgeting
    • Fixed interest rates facilitate long-term financial planning. Whether for mortgages, student loans, or business loans, knowing the exact repayment amount allows individuals and businesses to plan ahead more effectively. It reduces the uncertainty associated with variable rates, which can change frequently and unpredictably.
  4. Peace of Mind
    • Knowing that your interest rate won’t change over the term of your loan provides peace of mind. Borrowers do not need to constantly monitor market fluctuations or worry about sudden increases in their monthly payments. This stability can reduce stress and help maintain financial well-being over the long term.
  5. Historical Perspective
    • Historically, long-term fixed interest rates have often been lower than variable rates over extended periods. Locking in a low fixed rate can lead to significant savings compared to potentially higher variable rates during economic upswings.
  6. Economic Stability
    • Fixed interest rates contribute to economic stability by reducing volatility in consumer spending and investment decisions. They provide lenders and borrowers with a clear framework for financial planning, contributing to a more stable financial environment overall.


Fixed and Variable Rates?
Five Reasons Why Businesses are Choosing Fixed-Rate SBA 504 Loans


1.  Interest Rates and Loan Terms 

Conventional loan rates are typically only fixed for a certain period of time, usually 3-10 years.  After that, the rate is reset and could become variable.  In a rising rate environment, that means you could find yourself with a much higher rate in the future.  Conversely, one of the biggest benefits of an SBA 504 loan are the low, fixed interest rates and long loan terms. Since the loan is government-backed, the rates and fees on an SBA 504 loan are a lot lower than what you’re likely to find with a conventional loan.  In a nutshell, SBA 504 rates are tied to the bonds that are sold to institutional investors, and the interest rates are typically reflective of 10-year U.S. Treasury bond rates, which are long-term, fixed-rate assets.

What this really means for you as the borrower is that through the SBA 504 program, you secure long-term, fixed-interest rates that are extremely competitive (often at or below prime). When you factor in the longer repayment terms (up to 25 years) and the reduced owner-equity requirement (usually 10% for SBA 504), it’s hard to find a better option anywhere.

Check out the current and historical interest rates for 504 loans

It’s no secret that when interest rates rise, banks charge more for business loans.  Therefore, small businesses will likely flood to the SBA 504 loan program to either refinance their variable rate loans or to lock in today’s low, long-term fixed rate as a smart way to finance their expansion plans.  The 504 offers a great opportunity for fixing occupancy costs well into the future.


2.  Down Payment Requirements

For businesses looking to protect their cash flow, or facing tighter cash flow because of higher interest rates, the SBA 504 offers another advantage.  Down payments as low as ten percent.  This amounts to huge cash savings as most conventional loans require 20%, or even up to 35%, down.


3.  No Balloon Payments or Call Provisions

A balloon loan mortgage, common in commercial real estate, is usually a short mortgage that requires a large one-time payment at the end of the term.  This can mean your payments are lower in the years before the balloon payment comes due, but you will either owe a lump sum at the end or be required to refinance the balance.  This can lead to another round of building appraisals and credit approvals to endure.  However, unlike conventional commercial real estate loans, a 504 Loan has no balloon payments.

Call provisions are similar to balloon payments in that, with a conventional loan, you may be required to maintain a specific debt-service coverage ratio as a way for lenders to lower their risk.  If you fail to meet that provision, the bank can “call in” your loan.  This means you would either have to pay off the balance, or refinance it.  The SBA 504 Loan Program has no covenants or call provisions either.  What you get is a long-term, fixed rate loan offering secure, predictable monthly payments for the life of the loan.


4.  Roll in Closing Costs, Soft Costs and Other Fees

All loans come with closing costs, which include appraisals, loan origination fees, etc.  These expenses can add up quickly.  Conventional financing typically requires all closing costs to be paid upfront, but SBA 504 loans allow you to roll them into the loan, thus preserving your cash. Not to mention, if you are expanding your business, the cost of equipment, furniture and fixtures, parking lots, architectural fees, etc. can also be rolled into the loan, saving you even more.


5.  Most Businesses Qualify

Most for-profit businesses are eligible to receive SBA 504 financing, so long as they average less than $5 million in annual after-tax profits and $15 million in net worth.  Additionally, most national, regional, and community banks participate in the program…


Typical 504 borrowers:

Medical/Professional Retail/Service Industrial Special-Use
Doctor’s Office Restaurants Recycling Facilities Bowling Alleys
Veterinarian Offices Retail Stores Food Manufacturing Funeral Homes
Dentists Health Clubs Steel Production Car Washes
Attorneys Day Care Providers Packaging Companies Assisted Living
Accountants Pet Care Services Commercial Printers Grain Elevators
Chiropractors Farmers Markets Machine Shops Livestock Feedlots
Architects Boutiques Freight & Transport Mini-Storage
Graphic Designers Auto Repair Shops Wholesalers Sports Arenas
Physical Therapists Convenience Stores Mass Production Tennis Clubs


Funds from a 504 loan can be used for:

  • Acquisition of real estate (land and buildings)
  • Acquisition of equipment
  • Construction and renovation costs
  • Soft costs – the ability to include furniture, fixtures, and fees
  • Refinancing conventional loans

There is no limit to the total project cost with a 504 Loan. The SBA portion (40 percent of the total project cost) is capped at $5,000,000 or $5,500,000 for manufacturing projects or projects that implement green efficiencies.

Sometimes it takes a big investment of resources to jump start growth for a small business. Maybe there’s special equipment that could increase productivity.  Or, a building next door that would make a perfect addition to an existing shop. Or, maybe an existing facility needs a serious face-lift.  In each of these cases, an SBA 504 loan could be the perfect business financing solution.  These loans are available to for-profit businesses to purchase real estate, equipment, and machinery. They can also be used to refinance existing commercial mortgage debt or to remodel existing facilities. SBA 504 loans are very business-friendly, requiring a down payment of typically just 10% and offering 10- to 25-year terms with low, fixed interest rates.


SBA 504 loans, guaranteed by the U.S. Small Business Administration, provide long-term financing for the purchase of real estate, equipment, and other fixed assets. There are three parties to an SBA 504 loan—the borrower, the bank, and the SBA-approved certified development company (CDC) (Growth Corp). SBA 504 loans feature 10- to 25-year terms, low interest rates, and down payments as low as 10%.


Want to Learn More?

Keep in mind, we work in conjunction with local banks…not in competition with them.

Why Growth Corp?  We know small business.  It’s our passion.  We are proud to have helped thousands of businesses facilitate expansion.  As the largest 504 Lender in Illinois, we have dedicated ourselves to making the 504 Loan Program as efficient and seamless as possible.  In addition, we are an authorized Continuing Professional Education sponsor and can provide you with C.P.E. credits for our SBA 504 Loan Program update course.

If you want to learn more, we would be happy to meet with you. Just give us a call at (217) 787-7557 or contact any member of our Lending Team.


In conclusion, while the choice between fixed and variable interest rates depends on individual circumstances and market conditions, opting for long-term fixed rates offers clear advantages in terms of stability, predictability, and peace of mind. It supports prudent financial management and empowers individuals and businesses to plan for the future with confidence. By understanding these benefits, individuals can make informed decisions that align with their long-term financial goals.