For the third-consecutive session, the Federal Reserve raised rates by another ¾ of a percentage point during the September Federal Open Market Committee meeting. This marks the fifth increase this year in an attempt to curb soaring inflation, but it’s putting small business owners across the nation in an uncomfortable position. Most business owners have either never experienced this type of rising rate environment or at a minimum haven’t seen anything close to this since the early 1990s.
Most people think that the main issue with increased rates lies in their increased costs to borrow, and in many circumstances that is correct, but that’s only part of the story. The issue for small business is less about “what their rate is going to be” and more “what will I qualify for” or “will I qualify.”
Increased rates means that most traditional banks and credit unions are tightening lending standards. Not only will cost to borrow be higher, but loan amounts and credit limits will be lower, especially for small business owners.
Let’s use mortgage loans as an example. When mortgage rates were 3% a household with $100,000 per year in annual income could qualify for approximately $470,000 mortgage. In a rising rate environment if that same household must take on an 8% mortgage, their mortgage purchasing power decreases to $315,000 simply due to the cost to borrow. While this example is more consumer focused, the same principals apply to small business lending.
Fed officials signaled the intention of continuing to hike interest costs until the funds level hits 4.6% in 2023 and it’s assumed that the Fed will not be reversing its interest rate hike any time soon. One thing that won’t change is that the U.S. economy is based on credit, access to funding, and fueled by small business.
With rates increasing and access to traditional bank financing tightening, small business owners will continue to rely on alternative funding sources, like Coast Funding, to help manage cash flow and continue business growth. At Coast Funding, we don’t have the same restrictions as traditional banks and credit unions. That said, we are here to help business owners access the funding programs they need to keep their businesses thriving. Our dedicated, U.S.-based team of funding advisors are standing by to help secure the capital you need to achieve your business goals. We provide working capital solutions and specialty financing to businesses nationwide. Our goal is to understand what our clients are looking to accomplish and deliver a program customized specifically to meet each client’s funding needs.
This content is for educational or informational purposes only and should not be taken as legal or financial advice. The information in this content does not necessarily reflect the views of Coast Funding Services LLC or its partners.