What Small Businesses Can Do About Rising Interest Rates

In December 2017, The Federal Reserve voted to raise interest rates between 1.25 and 1.5 percent, with the last quarter point increase in March 2018 and another expected in June. The Fed will incrementally raise interest rates three times through 2019, and again through 2020.

Rising interest rates indicate an optimistic economy, and an optimistic economy means more consumer spending for small business. But, on the flip side, small business owners know that rising interest rates also mean increased costs for small business loans, credit cards, and existing variable rate loans, making short-term loans and capital more difficult to acquire. And for consumers, interest rates will impact everything from student loans to mortgages, which may decrease the average American’s spending power. It’s also important to note that the increase won’t be limited to loans. For example, banks usually increase their prime rate — the interest rate that commercial banks charge their most creditworthy corporate customers — correspondingly with the federal funds rate.

This increase won’t affect businesses and borrowers that are locked into an existing fixed-rate loan, but for businesses looking to borrow in the near future, there are strategies to navigate your business financials in an increasingly expensive fiscal marketplace.

Monitor and Improve Your Credit Score

The better your credit, the better your interest rate. If you anticipate borrowing in the coming years, be sure to monitor your credit score and take measures to improve it by making payments on time, keeping utilization low, and using your line of credit only when necessary. You can check your credit report card with our free credit score tool, and take measures to fix your credit prior to applying for a loan.

Develop Relationships With Your Financial Resources

Help on the inside will keep you in the know. Develop strong partnerships with your lenders, financial advisors, and intermediary resources that have the expertise to assess your financials against the market, and can guide you towards the best decisions for your business. Research resources for free credit consultations, and leverage your relationships to form your long-term financial strategy.

Consider Your Borrowing Options

With the prevalence of financial firms, small businesses have more borrowing options than ever before. Do your research to find the best option for your business — whether that’s borrowing from a corporate bank, small bank, or online lender. Find fixed-rate APRs, payment plans, and credit lines that coincide with your specific business strategy to ensure you’re securing the right agreement.

Review Your Business Plan

Increasing interest rates, and thus reduced cash flow, can potentially impact small business profitability. As you prepare for a changing market, consider your business goals and extrapolate revenue numbers to make projections. Think about where you want your business to be in one year, three years, and five years, and how you’ll adapt to your target customer market, then make financial and business decisions to support a greater strategy.

With that said, don’t lose hope in the future of your business. An improving economy means job growth and increased consumer optimism. Plus, recent tax reforms are in place to help small businesses thrive. If you need help evaluating your financials or discovering financial solutions, the Credit Repair team of experts are always here to help.

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