Two things are certain in life: death and taxes. Notice there’s no mention of interest rates? That’s because they are anything but certain, as there are a variety of complicated factors that go into the Federal Reserve’s decision to raise or lower rates. Generally speaking, rates rise when the economy is strong, there’s low unemployment and inflation is healthy, such as now. It’s important to know what this means for you.
There are two kinds of rates:
Just because short-term rates rise doesn’t mean long-term rates will go up as well. A Federal Reserve interest rate change primarily impacts short-term rates and short-term credit, so borrowing can become more or less expensive depending on the direction of the change.
Adjustable-rate loans and lines of credit can be impacted by rate changes, which will influence your business in terms of the cost of your monthly payment. This means business loans can get more or less expensive and business credit card rates could change as well.
As a business owner, you should have one eye on interest rates and the other on your banking accounts to ensure you understand how an increase or decrease will affect your business plan. This will help you plan how much access to capital you think you might need to grow your business and repay your debts while having enough cash on hand for the day-to-day operations.
It’s important to fully understand the rates and terms of your financial accounts. For instance, you may have a line of credit with an adjustable rate that will tick up as a result of a rate increase. If you have fixed-rate loans, interest rate increases or decreases will not result in any immediate changes, but you do need to know when your fixed rate expires.
Meet with your banker or financial advisor to go over all of the products you’re in and the current rate(s) you’re paying. Consider swapping adjustable rate loans/lines of credit for fixed-rate products. Here are a few more things to think about to protect your business in a changing rate environment:
Finally, if you’re unsure the best strategy for your business, consult a Rockland Trust Bank advisor who understands your business banking needs.
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