Small business tips for rising interest rates, inflation
The Federal Open Market Committee (FOMC) hiked interest rates by a quarter point in March from 0.25% to 0.50% – the first time since 2018 – and is expected to raise short-term rates further this year. Russia’s invasion of Ukraine is also causing tremendous human and economic hardship and increasing upward pressure on inflation in the United States. With prices rising and the cost of supplies and services rising, what does this mean for small business owners?
prices are increasing
Rate hikes could fuel more expensive borrowing, higher credit card costs, and changes in consumer spending habits — all of which can affect a small business owner’s bottom line. To prepare, here are a few tips for small business owners in a rising interest rate environment:
- Consult a Small Business Banker – There is no reason to navigate this changing environment on your own. A small business banker can help you understand your options based on your particular business and needs.
- Know Your Financial Health – Since most small businesses are private, it takes some scrutiny to underestimate their solvency and long-term viability. The good news is that there are some established ways to measure financial health, such as: B. Understanding your balance sheet, income statement, and cash flow.
- Check Your Business for Pressure – What If Rates Keep Rising? Can you cover your credit and loan obligations as payments increase? It’s always a good idea to run through scenarios to ensure your business can survive any type of change.
- Check Any Adjustable Rate Loans You May Have – If you have adjustable rate loans, they will increase based on recent Federal Reserve (the Fed) actions. Consider switching your adjustable-rate loan to a fixed-rate product so that future Fed rate changes will no longer affect the cost of your borrowing.
- Make a plan to pay off your high-interest debt – Credit cards go up first when interest rates go up, so sit down and make a plan to pay off that debt as quickly as possible.
Inflation hits 40-year high
Small business owners are also struggling with rising costs due to rising inflation. According to the latest NFIB survey, 22% of property owners said inflation was their top business concern. While many owners are raising their prices to deal with inflation, here are a few other tips to help offset those challenges:
- Dust off your contingency plan – Now is a good time to run through “what if” scenarios and see if your organization is ready. What if your inventories keep increasing? What if consumer spending changes and your business is affected? What if your landlord, feeling the same pressure, increases your rent? It will be impossible to go through all the potential scenarios, but think about the ones that could have the biggest impact on your business and make sure you’re prepared.
- Get leaner – Cutting staff, product offerings or working hours is never easy, but temporarily it can be an option until rising inflation calms things down a bit. Look at your entire business and see if there are any areas to pause and revisit later.
- Access Additional Funds – Don’t be afraid to get help if you need it. Consult a small business banker and consider taking out a loan to help with cash flow fluctuations while inflationary pressures persist. Every small business’s situation is different, and a banker can help you outline next steps that might make sense.
With inflation and interest rate increases, now is a good time to take stock of your company’s financial situation, seek help from a small business banker, and consider what other changes might make sense for your company during this time.
Brandon Meredith is the small business owner from Wells Fargo, Idaho.
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