Disclaimer: Information in the Business Financing Blog is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the Business Financing Blog often covers financial products that Biz2Credit does not currently offer.
Throughout the course of your small business, you will likely experience economic turbulence from time to time. Whether it be rising or falling interest rates, the Federal Reserve’s monetary policy decisions on interest rates can have a direct impact on your business.
You can’t control what the economy or the Fed does, but you can create a strategy for you and your business to respond to economic conditions.
Here are a few things to consider while running your business during rate hikes or rate cuts.
The Fed Can Affect Your Business Trajectory
The Federal Reserve just lowered the federal funds rate for the first time in over 4 years. This decision changes the current interest rate environment as it determines the interest rate changes on fixed-rate and adjustable rate business loans.
The Federal Reserve lowers interest rates to incentivize consumer spending and small businesses to borrow money and reinvest back in their enterprises. The good news is that lower interest rates means your business can borrow money or refinance existing debt with lower interest payments.
Additionally, this could spur a change in consumer behavior. As interest rates on mortgages, credit cards and car loans go down, you may see a spike in spending. So this could be a perfect time to reevaluate reinvesting and growth plans for your enterprise.
How Small Business Owners Should Think About Lower Interest Rates
As the cost of borrowing money drops, there is plenty to consider for small business owners. Here are a few places to start post-interest rate change.
- Reevaluate your debt portfolio. If you have outstanding loans like a term loan, line of credit, or outstanding credit card debt with higher intertest rates, you could benefit from refinancing that debt into a lower interest rate product with a new lender.
- Adjust your cash flow. If you’re able to take advantage of low interest rates and potentially lower monthly payments, you could take pressure off of your balance sheet and reallocate funds elsewhere.
- Build a cash buffer. Unfortunately, as interest rates go down, so do interest rates on savings accounts. This makes it less incentivizing to save money. However, in a changing economic environment, having this buffer could save you from any potential business slowdown.
- Start looking at competitive lending rates. When there is an interest rate increase, it becomes less likely that you will find an appealing rate. But when rate cuts start, now is the time to become aggressive about looking at rates, especially fixed-rate loans. Whether its at commercial banks or an online lender, you may be able to get out of your high interest loan and secure a low interest rate loan.
Bottom Line
The pandemic has created a large headache for the central bank, economists and small business owners alike. However, you shouldn’t focus too much on where interest rates are. If you can put energy into solidifying your enterprise, the discussions of interest rates, basis points, and the stock market can be an afterthought rather than a stressor.
FAQs About Changing Interest Rates
What happens when interest rates change?
Interest rates on mortgage rates, savings accounts, student loans, and credit cards can shift. Additionally, the stock market can sometimes have a stark reaction.
What is the US interest rate today?
Interest rates change daily and is determined by the Federal Reserve and the bank’s prime rate.
What are benchmarks interest rates?
Benchmark interest rates are a baseline for determining the cost of borrowing and the return on investments in various financial products.