As an entrepreneur, it’s important to stay in the know about current events and how they can impact your business. One of the most discussed business headlines recently has been the Federal Reserve interest rate hike. Knowing what the rate hike means for your company can help you make informed decisions to improve your business’s financial state.
Last week the U.S. Bureau of Labor Statistics reported that inflation rose to over 9.1% in June 2022, making it the highest increase since November 1981. Between this new data and last month’s aggressive Federal Reserve interest rate increase, experts are now predicting that we could be in for a rate increase by as much as 1 percentage point at the Fed’s next meeting on July 26th-27th.
Why is the Fed Raising Rates?
As prices continue to soar, the rate hike is intended to curb inflation and try to prevent a recession.
What Does the Fed Rate Hike Mean for Small Business Owners?
The Fed rate hike means that business loans from traditional financial institutions will become increasingly harder to secure with more stringent requirements. In addition, the exorbitant interest rates will make borrowing money from a bank much less attractive.
What Can My Business Do to Cope with the Rising Interest Rates?
There are several actions that your business should take now. Here are a few of the most important ones:
- Pay Down Credit Card Debt
As the Fed raises interest rates, your company’s credit card debt will become more expensive. If you carry a balance, try to pay down outstanding credit card debt as these interest rates will result in much higher monthly payments. Not sure where to start? Our CFO services can help you scope out a 360 view of your finances, generate projections, clean up your books, boost your profitability, and position your business for better-and-better funding options!
- If There’s a Chance You May Need Business Financing Soon, Secure a Line of Credit Now
If your business does not have a line of credit, now is the time to consider securing one. A line of credit gives your business ongoing access to capital and allows you to draw any amount that you need up to your approval limit. Some of the major benefits are that you only pay interest on what you draw, and you can pay it back early without penalty. A business line of credit can strengthen your cash flow and allow you to stock up on inventory, handle gaps in accounts receivable, make payroll, or manage surprise expenses.
- Look to Refinance Variable-Rate Loans
If your business has any variable-rate loans, you should consider refinancing them with a fixed-rate loan. The rising interest rates have no impact on fixed-rate loans, making them much more desirable in the current climate. At CapFront, we offer term loans that have a fixed interest rates and fixed payments, so you have a predictable repayment amount that you pay back over a set period of time in regular intervals. Unlike traditional bank loans that are difficult to qualify for, the vast majority of small businesses can meet the minimum requirements for our working capital term loans because of their considerably more lenient approval criteria, which is holistically based on time in business, industry, cash flow and more, instead of just on credit. You can secure this type of loan by just providing your business bank statements.
What’s Next?
Inflation and fed rate hikes are likely to stick around for a while, so as a small business owner it’s critical to act now to help protect your company’s financial future. Contact us today and one of our dedicated relationship managers will discuss your needs in order to determine the best product for your business.