February 29, 2024

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Business Life

Five Ways Small Businesses Can Navigate The Latest Fed Rate Hike

For the first time in four years, the Federal Reserve boosted interest rates and is expected to do so six more times in 2022.

The Fed raised its federal funds rate a quarter-point on March 16, bringing it between 0.25% and 0.50%. That means small businesses—including Black-owned ones—could feel the sting in many ways. The Fed last raised rates in 2018 and just acted to battle inflation at a 40-year high.

The higher rates could fuel more costly business loans, greater credit card costs, and potentially weaken business activity. The latter could be especially true for small businesses selling big-ticket items that rely on financing as borrowing costs for consumers rise.

Thus, this new rising interest rate climate could bring pros and cons for small businesses.

On the plus side, businesses could still flourish as the economy remains quite strong, a key factor to why the Fed is acceptable with hiking rates, observers say. They maintain it too might take a while for the rate increases to impact the borrowing businesses do though they will be hit eventually.

On the minus side, rising interest rates could diminish cash flow and profits for small businesses if consumers cut spending due to interest rate changes. To boot, some companies might ponder price increases to help offset higher expenses they may incur.

BLACK ENTERPRISE offers tips to help small businesses deal with surging interest rates.

—  Examine shifting from a variable-rate loan — which moves in tandem with Fed rate increases — to a fixed-rate loan. It could help lower interest rate costs and perhaps establish a steady payment.

—  Inspect closely how efficiently you are operating your business. For instance, what about eliminating unread magazine subscriptions or switching to a bank that does not levy fees or offers a deal to win your business at a lower cost? Don’t be afraid to ask employees for their cost-cutting ideas.

—  Credit cards are among the first to climb as interest rates rise. Expert suggests paying down debt on high-interest credit card debt as quickly as possible. That perhaps is particularly true for new business owners who rely on credit cards to help finance their startups. Another option for entrepreneurs is to consider a balance transfer credit card but research it before doing so.

—  Make sure your financial status is as solid as possible. Entrepreneurs with strong business credit, for example, can sometimes gain lower rates than those without it. Robust revenues and credit can help small businesses potentially qualify for the most desirable business loans.

— Small business owners may do well to act now when it comes to financing or refinancing credit. With several more expected upcoming Fed rate increases on the way this year, acting quickly instead of waiting could potentially help lower borrowing costs.