Interest rates have been at historic lows since the beginning of the Covid-19 pandemic in the spring of 2020. Interest rates are kept low to incentivize businesses and consumers to spend money, purchase new assets, and create activity within the economy. Over the last 18 months the economy has become overheated with inflation hitting highs this country has not seen since the late 1970’s. In an effort to tame this high inflation the Federal Reserve has significantly increased interest rates in 2022 and business owners and leaders should know how rising rates could affect their business.
Small businesses, especially, depend on borrowing capital via loans, credit cards, and lines of credit to fund operations and growth. During times of rising interest rates, borrowing money from your local bank to purchase equipment, real estate, or fund working capital has now become more costly and will ultimately cut into the cash flow of the business. Businesses currently with variable rate loans will likely see their interest payments rise as the loan adjusts to the current rate environment.
Higher payments on interest are not the only expense that will cut into the cash flow of a small business. Historically, rising interest rates can have a domino-effect on the broader economy. The price of common goods used by small businesses such as petroleum, lumber, plastic, and metals will likely increase and cut into profits. This is a perfect time for business leaders to speak with their trusted advisors such as their commercial banker, CPA, or attorney to see if they have ideas on how to smooth out operations and cut back on expenses.
Rising interest rate environments can also create fierce competition between banks who are trying to find new business. Small businesses should be using this to their advantage and always shop around banks to see where they can get the best interest rate for borrowing. Our interest rates at PyraMax Bank are highly competitive and we recommend speaking with a commercial banker if you’re a small business that is considering borrowing in times like these.
The Commercial Bankers at PyraMax Bank are well-trained individuals that are here to directly serve our customers and act as advisors to their small business. Rising interest rate environments can create stress and uncertainty for many leaders within a small business. Come speak with a commercial banker here at PyraMax Bank to discuss the best options available to help your small business weather the storm and achieve its goals.
By Matt Zeske