Worked Examples and Checklists
Fixed vs variable business loan rates: a worked five-year comparison
How fixed and variable rates on Australian business loans compare when rates rise, stay flat or fall, with break-even arithmetic, break cost risk and split options.
A fixed rate buys certainty: your repayment does not change for the fixed period, but you usually pay a premium for it and face break costs if you leave early when rates have fallen. A variable rate starts lower and lets you repay or refinance freely, but your repayment moves with the lender's business rates, which generally follow the RBA cash rate. In the five-year example below, the variable loan is cheaper unless its rate rises by roughly 0.75 percentage points or more after the first year. With the cash rate rising during 2026 (to 4.60% from 30 September 2026, according to the RBA), that is the kind of break-even you should test against your own view and budget.
This guide is part of the business loan application checklist. Rates are illustrative.
The example
A transport business borrows $300,000 over five years, principal and interest. Two illustrative offers:
- Fixed at 9.2% for the full five years: repayment about $6,257 a month, total interest about $75,400.
- Variable starting at 8.7%: repayment about $6,184 a month.
The variable loan starts $73 a month cheaper. What happens next depends on rates.
Three scenarios for the variable loan
Each scenario assumes the rate changes once, at the start of year 2, and repayments are recalculated:
| Scenario | Rate in years 2–5 | Repayment years 2–5 | Total interest | Compared with fixed |
|---|---|---|---|---|
| Rates flat | 8.7% | $6,184 | about $71,000 | about $4,400 cheaper |
| Rates rise 0.75 points | 9.45% | about $6,273 | about $75,300 | about the same |
| Rates fall 0.5 points | 8.2% | about $6,125 | about $68,200 | about $7,200 cheaper |
So on these numbers, the fixed loan only wins if variable rates rise by more than about 0.75 points early in the term and stay there. A rise later in the term has less effect, because the balance is smaller by then.
You can check each repayment figure in the repayment calculator by entering the balance outstanding at the start of year 2 and the remaining term.
What the numbers leave out
Break costs. If you fix and later want to refinance, sell the business or repay from a windfall, the lender may charge a break cost if wholesale rates have fallen. That can wipe out the benefit of fixing. See the break cost explanation in the fees guide.
Flexibility. Variable business loans often allow extra repayments or redraw. Fixed loans often limit extra repayments.
Cash flow certainty. For a business with thin margins and fixed-price contracts, knowing the exact repayment can be worth paying for. A $100 a month increase is easy for some businesses and painful for others.
Fixed periods shorter than the loan. Many business loans fix for one to three years, then revert to variable. You then face whatever rate applies at that time.
Splitting the loan
Many lenders let you split a facility into fixed and variable portions. Example with the $300,000 loan:
- $150,000 fixed at 9.2%: about $3,128 a month
- $150,000 variable at 8.7%: about $3,092 a month
- Total: about $6,220 a month
If variable rates rise 1 point, only half the loan is affected, adding roughly $60 a month. If they fall, half the loan benefits, and you can make extra repayments or refinance the variable half without break costs.
Stress-testing your choice
| Variable rate rise | New repayment (years 2–5, approx.) | Extra each month vs start |
|---|---|---|
| +0.5 points | about $6,243 | about $59 |
| +1 point | about $6,303 | about $119 |
| +2 points | about $6,423 | about $239 |
Illustrative, rounded. Use these to check your cash flow forecast: will the business still meet its debt service cover requirement at the higher repayment?
Decision checklist
- How long will you keep the loan? If there is a real chance you will repay or refinance early, variable or a short fix avoids break costs.
- How sensitive is the business to a repayment rise of $100 to $250 a month per $300,000?
- Are your own revenues fixed-price (favours fixing) or can you pass on cost increases (favours variable)?
- What does the contract say about break costs and extra repayments?
- Can you split the loan?
- Are you comparing like for like? See the three-offer comparison for fees.
Frequently asked questions
Do variable business loan rates move exactly with the RBA?
Not necessarily. Lenders set their own business reference rates, which often follow cash rate changes but can move by different amounts or at other times, depending on funding costs.
Can I fix for less than the loan term?
Yes, commonly one to five years, after which the loan reverts to variable unless you fix again.
Is the fixed rate always higher than the variable rate?
No. When markets expect cash rates to fall, fixed rates can be lower than variable. Compare the offers on the day.
What is a break cost likely to be?
It depends on the amount, the time left in the fixed period and how much wholesale rates have moved. Only the lender can calculate it; ask for a written quote.
Sources
- Reserve Bank of Australia — cash rate decisions and statements
- ASIC Moneysmart — fixed and variable rate basics
- Australian Banking Association — Banking Code of Practice — information banks give before you sign
- business.gov.au — cash flow planning
