A floating-rate loan is a business loan where the interest rate changes over time based on market conditions. This means your monthly payments will vary up or down throughout the loan term.
For example, a retailer takes a $150,000 floating-rate loan tied to the bank's prime rate plus 3%. When prime rises from 5% to 6.5% over the loan's 3-year term, the business's monthly payment increases from $2,900 to $3,180 — an added cost the owner must account for in cash flow planning.
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