Interest rates are a major factor for most people seeking traditional financing. This is especially true for small business owners.

Interest rates are a main basis for differing payment amounts for loans. Interest rates are typically based on the prime rate set by the Federal Reserve. There are two primary types of interest rates: fixed rate and adjustable rate. Fixed rates are set at the time of inception and they will remain the same for the life of the loan or financing. Adjustable rates are also set at the time of inception. However, with an adjustable rate, both parties typically agree to a slightly lower starting rate with the knowledge that the rates will change to meet the market in a set period of time. Some adjustable rate loans will outline a clause that limits the amount a rate can be raised (e.g. the rate will be evaluated on an annual basis and it can be raised no more than 2% per year).

Some options offered by financial institutions do not have a fixed or adjustable rate or any interest at all. Some will charge fees or purchase a commodity at a reduced rate. In these cases, the amount paid could be more or less than would be paid in interest depending on such factors as the market performance, credit of the borrower or the type of financing.