As a small business owner, fluctuating interest rates can have a significant impact on your bottom line. While today’s interest rates are still well below the historical average, the Federal Reserve has indicated that it may start to increase the rates in the near future. In fact, there are some indications that rates may start to go up as early as this fall. Even if the rates continue to fall below historical averages, there are several ways that it can have an impact on your small business. As such, it is essential for you to take steps to help ensure your business remains strong and profitable.
Planning for the Future
Business planning is an essential part of maintaining a stable business. Often, this planning involves preparing for further expansion and growth. Obviously, an increase in interest rates will have an impact on your ability to grow your business further if this growth depends on taking out loans. If you have a loan with a fluctuating interest rate, you will also be hit by these increased rates even if you do not take out a new loan. Paying these higher interest rates will have a direct impact on your profits, which can then make it more difficult for you to secure additional loans in the future. As such, you may have to redirect your resources toward general maintenance of your business rather than reinvesting in growth and innovation.
Since many small businesses operate with limited cash flow, simply maintaining your business may become a struggle after interest rates are increased. With more of your resources going toward paying interest, you may have to delay paying receivables. With a more restricted cash flow, you may also have difficulty paying for machines, materials or even workers who are essential to your business. In this sense, the increased interest rates do more damage than simply preventing your business from growing – it may actually put your business in a position of struggling to remain afloat.
A Cyclical Affect
In addition to paying higher interest rates as a business owner, you may also find yourself facing consumers who are less willing to spend freely. While the interest rate is going up on your business loans, many consumers will also see higher interest rates on mortgage loans, auto loans and personal loans. Faced with higher costs, consumers are less likely to spend money on the goods or services that your small business has to offer. As such, if you have a consumer-driven business, you are likely to experience a reduction in sales.
Whether you are a small business owner or not, an increase in interest rates will certainly have an impact on your finances. While the good news is that the Fed only raises rates when it is confident that the economy is doing well, the bad news is that rising interest rates will increase both your business and personal costs. As a consumer, it may also lead to a decrease in product and service availability as businesses are forced to tighten their belts.
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(all data current as of 8/17/2017)
Listing information deemed reliable but not guaranteed. Read full disclaimer.