How Businesses Can Navigate A Changing Interest Rate Environment

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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.