Rising Interest Rates and Hikes on the Horizon?

by | Jun 15, 2022 | Business Finance | 0 comments

Interest rates are expected to rise yet again. In trying to control the otherwise out-of-control inflation we’re now experiencing in this country, the Federal Reserve seems invested in increasing interest rates. Consumers were already hit by one rather significant rate hike, and experts suggest that more are coming.

How Much More?

This question is on the minds of many Americans at the moment. Consumer prices are out of control. People are feeling the pain at the pumps. And in terms of potentially rising interest rates, Americans want to know what they will be facing soon and for the rest of this year.

Through May, inflation is at 8.6%; this would have been nearly unheard of in another time and place. But given the past couple of years, the war in Ukraine, new surges of Covid in areas such as China, and significant supply chain issues, inflation seems to have won the day. The Federal Reserve’s tactic for dealing with this rampant inflation appears to be to continue to raise interest rates.

According to an expert, “The Fed needs to show resolve. It can’t afford to appear that it doesn’t have conviction about getting their arms around the stubborn and persistent inflation.“ The question is, are rising interest rates the way to combat the current state of inflation.

Some say that raising interest rates so quickly and significantly is not necessarily going to help a flagging economy. Remember that there is a gap between when the higher rates are announced and when they impact consumer spending.

Given the Federal Reserve’s current approach, investors expect long-term rates to go higher, potentially much higher. As a result, some financial experts predict that the Fed could cause something of a crash rather than help the current situation.

What Can Small Businesses with Rising Interest Rates?

America’s small businesses have been hit hard over the past few years. And many companies are still struggling to get back on their feet after the pandemic and its aftermath. With rising interest rates on the horizon and potentially no end in sight for when these increases will stop, what can small businesses do to hold the course and make it through this?

1. Procure financing now

Rates will inevitably rise again and perhaps even later in the year. Getting financing in place now before rates rise too high is going to be imperative for many smaller businesses. Some predict that the Fed may raise rates by 2% or more throughout the rest of this year. This means rates and commercial lending could be out of reach for many. Waiting for even a month or two to apply for financing for your business could make it cost-prohibitive. So look to get your funding now.

2. Think about ways to raise capital

For those for whom financing is not an option, another way to raise money for your company is to sell equity. This, however, will force you to lose ownership of a percentage of your company. Financially this could work but think about the long-term ramifications of selling equity in your business to raise money.

3. Refinance existing debt

Especially if you have an obligation with variable interest rates, you may seriously want to consider refinancing to a fixed rate and limit how much exposure you have to rising interest rates. Again, this goes back to finding financing to weather the storm that is about to come.

4. Finance customer invoices

The combination of rising interest rates and inflation is making it more and more difficult for consumers to spend as they once were. Not only do you want to invoice quickly and strategically, but you may want to leverage those invoices to get cash upfront right now. Numerous alternative and online lenders will offer invoice financing or factoring. And in the grip of rising interest rates, this could be a good solution for your company.

5. Strategically raise your prices

While people already feel the pain of inflation, they also understand that businesses must survive. To survive, prices inevitably have to go up. In raising your prices, have a clear plan in place and make sure you communicate to your customer base why you are forced to raise your prices. Sending out an email or creating some formal announcement to this effect helps to show that your concern is genuine and your approach is motivated by inflation and rising interest rates.

First Union Can Help

We are here for you during this difficult financial time. We offer short-term loans, merchant cash advances, and SBA loans for businesses across various industries, among other financing types. From hospitality-based companies to manufacturers to retailers, we’ve got you covered. First Union can get you the cash you need within 2 to 3 business days, not weeks or months from now. When it matters, we are here for you. Call today.