Accounting & Finance

How Do Rising Interest Rates Impact My Small Business?

As a small business owner, it's important to stay up-to-date on all the latest economic news. This week, the Federal Reserve raised interest rates again. This move aims to keep inflation in check and ensure that the economy continues to grow at a sustainable pace. While higher interest rates will make it more expensive to borrow money, they can also lead to higher returns on savings and investments.

Staying informed about what's going on in the economy is a key part of being a successful small business owner. Let's take a look at how higher interest rates could impact your small business.

What do Rising Interest Rates Mean, and What Causes Them to go Up or Down?

Interest rates are the percentage of an annual loan charge that is paid as interest instead of principal. The rising interest rates refer to an increase in these percentages. Many factors can contribute to rising interest rates, but the most common include inflation, the Federal Reserve, and global market conditions.

When inflation goes up, so do rates because lenders will want to be compensated for the loss in value of their money. The Federal Reserve can also raise or lower rates in order to encourage or discourage borrowing and spending.

Lastly, global market conditions play a role because investors often turn to U.S. Treasury securities when they are seeking stability amid the turmoil. When demand for these securities is high, rates tend to rise.

All of these factors can impact the interest rate on everything from business credit cards to mortgages. Understanding how they work can help you make business decisions about borrowing or saving money.

How do Rising Interest Rates Impact my Small Businesses?

Specifically, How Does it Affect my Borrowing Power and Ability to Grow?

Small businesses are core to the American economy and often rely on borrowing to finance their growth. When interest rates rise, they can have a significant impact on small businesses. As borrowing costs increase, small businesses may find it more difficult to obtain the financing they need to expand their operations. In addition, higher interest rates can also make it more expensive to service existing debt, which can put a strain on cash flow and reduce profitability. As a result, rising interest rates can have a negative effect on a small business's immediate growth.

Related Reading: 7 Strategic Ways to Increase Your Revenue

What Can Small Business Owners do to Prepare for Increasing Interest Rates?

Many small business owners might feel anxious about the interest rate increase. After all, higher interest rates can mean higher borrowing costs, which can put a strain on already tight budgets. However, there are steps that as a small business owner you can take to prepare for rising interest rates.

1. Assess What Types of Interest Rates You Have for Your Debt

First, it's important to understand how interest rates will impact your business. If you have any loans with variable interest rates to anticipate how much your payments could increase. Additionally, if you have any business credit cards that are carrying a balance month to month, you can expect those interest fees to increase as most credit cards have variable interest rates. 

2. Review Your Budget

Now is a good time to review your budget and ensure you have enough cash flow to cover any increased costs that might occur due to rising interest rates.

3. Have a Contingency Plan

It's a good idea to have a contingency plan in place after reviewing your budget if your business is unexpectedly affected by rising interest rates. Do you have savings to help cover additional costs? Is there an area you can reduce spending in to make up for the additional expenses?

By considering these steps, you can help make sure that your small business is prepared for the rise of interest rates.

Are There any Benefits of Rising Interest Rates for Small Businesses?

While rising interest rates may seem like bad news for small businesses, there are actually a few silver linings to be found. As interest rates go up, so does the yield on investment products like high-yield savings accounts, certificate deposit accounts, and 401(k) retirement accounts. This can provide a nice boost to businesses that have money saved up and are looking for a place to invest it. So while rising interest rates may not be ideal, there are certainly some benefits that small businesses can take advantage of.

Equal-1Fundid Recommendation: Did you know even as a small business owner, you can have an affordable 401(k) account? Penelope is the best retirement platform for small business owners. They recommend the plan that is best for your needs, whether that's a Pooled Employer Plan (PEP), traditional 401(k), or a Solo 401(k). You can get started with plans as low as $8 a month. Save up to $875 when you sign up!

Can Small Businesses Still get Loans with Rising Interest Rates?

Even though interest rates have been rising in recent months, that doesn't mean that small businesses can't and shouldn't consider obtaining a business loan. In fact, there are a number of options available for small businesses to get the financing they need even with interest rates rising.

1. Fundid Capital

One option is to look for small business loans from alternative lenders like Fundid Capital. Our marketplace of lenders offer funding options to business owners with lower eligibility requirements than most traditional banks. Explore your options.

2. Line of Credit

Another option is to obtain a line of credit. This can be a good option for small businesses that need flexibility in their financing. A line of credit gives you access to a certain amount of funds you can use as you need them, and you only have to pay interest on the funds you actually use. Apply for a line of credit through Fundid Capital.

3. Business Charge or Credit Card

Finally, you can also consider obtaining a business charge or credit card. Business charge cards often have no interest rates, as you are required to pay your balance in full to avoid late fees. However, with a business credit card, you will pay interest on the balance you carry monthly. 

Prepare Your Small Business for Rising Interest Rates

Although rising interest rates can be a challenge for some small businesses, there are ways to prepare and benefit from them. Fundid Capital might be a solution to help your business access the capital you need so your business can continue to grow. Learn more about the requirements for Fundid Capital.