Federal Reserve Rates: What an Increase Could Mean for Your Business
The Federal Reserve Board will meet again on September 25-26 and decide about raising interest rates. Currently, it is anticipated we will see a rate increase during September and again in December, particularly given the current state of the job market, and a better overall economic outlook.
The challenge for many businesses is this could mean higher interest rates on borrowed money. Current business owners who have loans out at adjustable rates could be facing higher rates, which means less profit being realized.
Obtaining Loans Could be More Challenging
Interestingly enough, loans to businesses continue to be slower than anticipated. In January of 2018, there was a report released by the Board of Governors of the Federal Reserve System which showed loans to small businesses have not yet recovered from the recession, in spite of better overall economic numbers.
This means small and mid-sized business owners are still facing challenges getting the working capital they need to fund their businesses. Since the current climate is positive for businesses, most find they need more capital to invest in new hires, equipment, and materials to ensure they can deliver on contracts to their customers.
Overall Production and Interest Rates
One concern about rising interest rates is the impact they have on small and mid-sized companies which may lead to slower growth. According to the Federal Reserve, overall production still remains nearly two percent below the average of the last 10 years. This is good news and bad news largely depending on how you want to look at it. The fact that production is lower than the average means there is room for expansion to meet the average and there is room for growth beyond the average if the economy does not contract because of higher interest rates.
Expanding and Cash Flow Issues
One of the many challenges faced by a company who wishes to increase their production is cash flow. Let’s face facts, it is nearly impossible to ramp up production without hiring additional staff, potentially purchasing more equipment, and taking on bigger contracts. This means investing more money into your company, money that you may be able to anticipate over the next 90 days, but do not have available today. This is when you may seek additional capital in the form of a loan — the challenge there is if you have been suffering like so many businesses from slower than usual production, your company’s balance sheet may not support taking on new debt. The threat of looming interest rate hikes may also prevent you from seeking a loan.
Accounts Receivable Factoring May Provide Answers
One of the advantages of using your accounts receivable to generate working capital is you do not need to take on any new debt. Instead, you can use the proceeds of a factor advance to accelerate your working capital and fund your company’s growth.. The larger the contract, the more cash you can infuse into your business.
Regardless of whether you are in the staffing industry, your business focuses on construction projects, or you are a minority-owned business seeking an infusion of capital, Capstone Credit Group can help. Our goal is to find the right financing solutions that fit your needs and make sure you have the capital to continue expanding your business. Contact our offices today and speak with one of our account representatives and let us create a customized proposal based on your specific needs. Do not let increasing interest rates or a lack of access to capital prevent you from realizing your business goals.