Tips for Small Business Owners in the Face of Rising Interest Rates
As interest rates continue to rise to record-high levels from the second half of 2022 through the beginning of 2023, the cost of borrowing money has increased significantly for most types of loans. While this may seem like intimidating times for small business owners, there are still ways to get the cash your business needs to thrive and expand. One of the most popular choices for small business owners are SBA 7(a) loans. Here is what you need to know about interest rates and how they may impact your current or future SBA loan.
Interest Rate Projections for 2023
The Federal Reserve has indicated that interest rates may continue to rise in 2023 to help combat inflation. However, experts predict that the pace of rate hikes will slow down in the latter half of the year as inflation begins to stabilize. This generally means that timing is important. Deciding whether to finance your small business next step now or waiting to potentially take advantage of lower rates later in the year can be crucial to your business’s financial success.
Why Interest Rates Are Rising
Raising interest rates is one of the primary tools the Federal Reserve uses to control inflation. When the economy is growing too fast, inflation may occur and raising rates help to slow the amount of money circulating through the economy, which may help to lower inflation. Conversely, when the economy is sluggish, the Federal Reserve may lower rates to encourage borrowing and spending. As a result, rising rates typically mean the economy has been growing at a record pace, which is typically good news for small businesses and means that it’s generally a favorable time to invest in helping your company grow.
Signs of Inflation
The current U.S. Inflation Rate is 4.98%, compared to 6.04% in February 2023, and 8.54% a year ago. Falling inflation rates may also slow the Federal Reserve’s interest rate hikes, since they have worked to slow inflation. Signs of inflation typically include lost purchasing power, higher interest rates, and higher prices for groceries, gas, consumer goods, and other items. When the economy slows down, inflation typically ebbs and flows through time. However, there are external factors that may have caused the current inflation impacting the United States, such as supply chain issues, conflict, and negative gross domestic product (GDP) periods.
Impact on SBA Loans
SBA loans are often considered to be the best option for many small business owners since they are designed to be affordable, even with variable interest rates. While rate hikes may still be a concern for borrowers, the impact on SBA loans is usually minimal. For example, if the Fed Prime Rate were to increase by 0.25%, a $100,000 SBA loan payment would only increase by about $13 per month, which is less than one hour of minimum wage in some states. Additionally, SBA loans offer manageable 10-year terms, wide use of proceeds for any business expense, and no prepayment penalty.
Ready for an SBA Loan?
The right capital, at the right time, may help your business flourish, even in an uncertain economy. If you need working capital or want to refinance expensive debt, an SBA loan may be a great option. SmartBiz® has helped more small business owners secure SBA loans than any other platform. We’ve streamlined the long, complicated application process, saving you precious time and effort. Check now whether you pre-qualify* for an SBA 7(a) loan. If you’re interested in non-SBA financing, SmartBiz also facilitates bank term loans with fixed rates and other funding options like lines of credit.
In conclusion, although interest rates are on the rise, SBA loans continue to be a popular choice for small business owners ensuring that financing for their businesses is still within reach. Timing and various factors must be considered, but with help from SmartBiz, getting the cash your business needs can be made easier and less complicated.