Fixed vs variable business loans: certainty against flexibility

Strip away the jargon and this choice is about one thing: who wears the risk of interest rates changing. Fix, and the lender takes it on for an agreed period; your repayment stays put whatever the Reserve Bank does. Stay variable, and the risk is yours, along with the benefit when rates fall. Everything else, from break costs to extra repayments, follows from that trade.

Australian small businesses are split on it. When the RBA looked at small business finance in its September 2023 Bulletin, it noted that around one-third of small business credit was on fixed rates, compared with less than 10 per cent of credit to large businesses, which tend to manage rate risk through hedging instead.

How do fixed and variable loans differ?

	Locked rate	Floating rate
What you pay each period	Unchanged until the lock expires	Moves whenever the lender adjusts its pricing
Length of the lock	Commonly between one and five years, rolling to floating afterwards	No lock
When rates rise	You’re protected until the period ends	Your repayments go up
When rates fall	You miss out until the period ends	Your repayments come down
Paying more than required	Capped, or barred entirely	Normally fine
Redraw or offset account	Uncommon	Available with some lenders
Leaving early	A break fee can be charged	Little or nothing to pay in most cases
Best for	Tight budgets needing certainty	Businesses wanting flexibility or expecting to repay early

What are break costs, and why do they matter so much?

Locking a rate prompts the lender to arrange matching funding priced at that moment. Pay out early after market rates have dropped, and the lender is left lending those dollars again for less. The break cost covers that shortfall, and it’s calculated by a formula set out in your contract.

The amount depends on the balance, how long is left on the fixed period and how far rates have moved. On a large commercial property loan with years left to run, it can reach tens of thousands of dollars. If rates have risen since you fixed, there may be no break cost at all.

This is why the most important question isn’t “will rates go up?” It’s “could I need to repay, sell or refinance before the fixed period ends?” If the honest answer is “possibly”, fixing the whole loan is a gamble on your own plans, not just on the economy. Our glossary entry on break costs explains how they’re worked out.

The hidden fixed loans: short-term online lending

Many owners don’t realise they already have a fixed loan. A lot of short-term unsecured lenders quote a single total repayable at the start: borrow $50k, repay a stated figure over twelve months by weekly debit. That cost doesn’t move with market rates, so there’s no rate risk. But there’s also little to gain by paying early unless the contract says otherwise, because much of the cost is locked in from day one.

Before signing, ask how an early payout is calculated. Some lenders discount the remaining cost, others charge most or all of it. The short-term vs long-term comparison covers that trade-off in more detail.

Weighing a fixed offer against a variable one right now? Tell us about the loan and we’ll help you look at the numbers.

When does fixing come out ahead?

• Your margins are thin and predictable. A childcare centre, a medical practice or a franchise with set costs can budget precisely with fixed repayments.
• You’re borrowing heavily against property. On a large commercial loan, even a modest increase in rates adds meaningful dollars each month.
• You won’t need to touch the loan. No planned sale, refinance or big lump-sum repayment in the next few years.
• Peace of mind is worth something. Some owners simply sleep better knowing the number won’t change.

The RBA’s October 2025 Bulletin found that recent growth in new fixed-term SME loans has come mainly from lending for property purchases, general business purposes and construction, which fits that pattern: big, long-lived borrowing is where certainty is most valued.

When does variable come out ahead?

• You expect to repay early. An asset sale, an insurance payout, a business sale or a strong season could clear part of the loan.
• You might refinance. If you’re borrowing from a non-bank lender now with plans to move to a bank once your financials improve, variable avoids break costs at the moment you want to move.
• Cash flow is lumpy. Being able to throw surplus at the loan in good months, and redraw where available, can matter more than repayment certainty.
• The loan is short. On a loan of a year or two, there’s less time for rates to move and less to gain from fixing.

What about splitting the loan?

Many banks, and some non-bank property lenders, let you divide a loan into fixed and variable portions. A café owner buying their premises with a $600k loan might fix $400k for three years to protect the core repayment, and leave $200k variable so a good summer can go straight onto the balance without penalty.

There’s no correct ratio. A useful rule of thumb is to fix roughly the portion you’re sure you won’t repay early, and keep the rest variable. Run both portions through the repayment calculator to see what each contributes.

Where do banks fit?

Banks offer both fixed and variable business lending, and for businesses that meet their criteria they’re usually the most competitive source of property-secured funding. If your bank offers a fixed or variable deal that suits you, it deserves serious consideration. The 2025 Banking Code of Practice also requires banks to give small business customers a plain-English summary of key loan terms before they accept an offer, which is a good place to find the break cost and extra repayment rules.

When the bank says no, non-bank and private lenders often step in, particularly for commercial property loans and property-secured term loans. Their fixed and variable options vary widely, so read the early repayment clauses closely.

Decision checklist

1. Is there any chance I’ll pay this off or move lenders before the lock ends? If so, lean variable or fix only part.
2. What would a rise in repayments do to my cash flow? If it would hurt badly, lean fixed.
3. What does the contract say about break costs? Ask for a worked example.
4. How much extra can I repay on the fixed portion? Get the annual limit in writing.
5. What happens when the fixed period ends? Find out the revert terms.
6. Is a split available? It may solve the dilemma.

Ready to set up a loan that fits how you operate?

Fixed or variable is just one decision on a business loan, and it often depends on the bigger picture: the amount, the security and what you plan to do next. Helping owners weigh that up is our daily work.

The enquiry form is a sixty-second job, and putting your hand up doesn’t trigger any check on your credit. There’s no mass distribution of your enquiry to lenders; instead, someone on our team works through what you’ve told us and phones you. Precise figures on the amount, the security on offer and your plans for the coming years help us bring back a suitable option straight up.

Talk to us about fixed, variable or a split →