When you're starting your cannabusiness, you will need to find the best method for financing that fits your income, assets, and projected sales. This is the same with virtually any financing, but the nature of cannabis companies is such that you might be inclined to accept any funding that someone is willing to provide without being too discerning. It's in your best interest to make sure you get the right loan for the cannabis equipment you want to buy, but what does that actually mean for you, the business owner?
Both fixed-rate and variable-rate loans have their uses, and depending on your situation, one might be better than the other. So whether you're a seasoned professional in the entrepreneurial world or you're just starting out with a twinkle in your eyes and big plans in your head, let's look at the best possible rate for your specific needs.
These loans have their rates based on the volatility of interest rates as a whole, and they reflect how well the economy is doing. A great economy with little risk means lower rates and a lower monthly payment, but if things turn sour, you could be paying significantly more each month. It's also worth noting that these loans might waver month-to-month, making it harder to pin down how much you'll need to pay and making budgeting harder (or at least more frustrating).
Variable interest rates are great because they tend to start lower, and as long as the economy is good, you'll often pay less overall. In fact, if interest rates stay flat or fall, you could spend remarkably less over the life of your loan vs a fixed rate.
As the economy is in more flux, interest rates tend to increase, and as we said before, these loans make for changing monthly payments, which can be anything from a budgeting hassle to an outright detriment to your finances. Additionally, though these rates can cap at a 2% change from where they start, some lenders can cap at 20% or more, meaning your loan could balloon if interest rates are bad.
Variable rates are great for people who have a lot of startup money and expect to turn a great profit and are willing to pay them down as quickly as possible. They're also perfect for people borrowing in a great economy where interest rates are expected to stay low or decrease.
Fixed-rate loans are extremely safe and straightforward, provided to you by the lender when you are given the details of the loan. A fixed-rate will never change over the life of the loan—if the lender states a 5.5% rate, then that's what you're paying from the first month to the last. This is extremely helpful for people who are more cautious, or if there is a potential for a downturn in the economy. For instance, a fixed rate of 5% on a mortgage might seem high, but if you locked that in before the housing crisis in the late 2000s, you were doing a lot better than people with variable-rate loans.
For a fixed-rate loan, there is never a chance your loan will increase, no matter what the market does. This is hugely beneficial, especially in tumultuous economic times, and it can save you a tremendous amount if the markets and banking industries start to falter. Additionally, your monthly payments are exactly the same—if your lending agreement states $500 monthly loan payments, that's what you'll pay forever. This can help you budget and plan expenses far better and reduce stress about making sure your bills are paid correctly.
Fixed rates tend to be higher than variable rates, based on the fact that the lender is taking a risk, as they don't know how the markets will fare in the future. Additionally, if the economy is going great, you will miss out on that improvement and all the rate-lowering windfall it would provide.
If you're a cautious person or if interest rates are poised to move up, a fixed-rate loan is a good choice. Additionally, if you're considering a large loan that you won't pay off for a while, fixed-rate loans give you the security of a predictable monthly payment for the life of the loan.
Variable rates are good for a positive economy, or if you have an intent to quickly pay off your loan. If things are volatile, you could end up paying dramatically more money with a variable rate, so consider everything before you make a choice. Additionally, ask your lender just how much the rate can change—if they tell you it can fluctuate as high as 10% or more, you should consider that heavily.
Fixed rates start off higher in most cases, but they're predictable and not subject to market fluctuations. It's important to speak with a financial advisor and your lender to determine which is right for your cannabusiness. To start the process, you can get pre-approved for the equipment financing loan you need in 48 hours by contacting our team.
Posted by Canna Business TeamFacebook
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