The American economy is on the road to improve, therefore the Authorities announced mortgage loan hike to help ease inflation. Continue reading to learn about how the rate of interest increase might affect your business.
How are rates of interest calculated?
A loan's interest rate is calculated by multiplying the loan's periodic rate of interest by the periods each year where the rates are applied. Interest rates do not include charges on top of the loan such as settlement costs and application fees. A loan's APR can be calculated when factoring in these types of additional charges.
PRO TIP: Work with your accountant or another financial professional to crunch the numbers. This can help you estimate making payments in time for the life of the borrowed funds and can help determine if your utilization of proceeds can help you reach your purpose.
A Fed interest rate change can impact your loan payments
When the Federal Government announces an interest rate increase you should bear in mind because it could affect interest rates and APR, which impacts payments. But that impact does not have to harm cash flow.
Here's an example outlining how a current variable rate SBA loan payment may be affected. In a nutshell, the SBA loan's 10-year term means variable rate loan payments will not skyrocket.
If an entrepreneur secures a $100,000 SBA 7(a) loan and the rate of interest rises from 6.25% to 7.75%, the payment per month only increases by $78.00 per month. (From $1,122.00 to $1,200.00)
Small business owners also have their eye at the base line which small increase produces a minimal impact to cash flow. Entrepreneurs can continue to make payroll, launch growth initiatives, and reach goals without a painful financial adjustment. If the new increase doesn't seem small to you, then you should consider trying to get a fixed rate term loan or perhaps a SmartBiz(R) Custom Financing option with a fixed interest rate.
It's also important to notice that SBA loans from banks in the SmartBiz network don't have any prepayment penalty, so these loans could be repaid sooner if cash flow allows. This enables you to build business credit, allowing you to borrow more cheaper if you want future funding.
The professionals at SmartBiz are available to assist you to explore funding options from lenders within the SmartBiz network.
For the loan products provided by banks within the SmartBiz network, the present rates are the following:
SBA Loans
Amounts offered: $30,000 – $350,000
10-year term
- Working Capital & Debt Refinance Loans from $30,000 to $50,000 have a variable rate of the Prime Rate + 3.75% – which yields a present rate 7.25%
- Working Capital & Debt Refinance Loans from $50,001 to $350,000 have a variable rate of the Prime Rate + 2.75% – which yields a current rate of 6.25%*
Bank Term Loans
Amounts offered: $30,000 – $500,000
Fixed rate loans with a 2-5-year term
Custom Financing (business lines of credit, invoice financing, and business credit cards)
Amounts offered: $30,000 – $500,000
24 – 60-month terms
Fixed or variable rate depends upon financing type
How aggressive will the Fed maintain hiking rates in 2022?
Raising interest rates by a bit gives the Authorities time to track how the economy evolves.
Federal Reserve Chairman Jerome Powell said that the government Reserve would raise rates more aggressively as needed, with the possibility of six more rate increases in 2022.
What does a rate change rely on?
The decision to raise or lower rates is not made lightly. The rate moves can depend on a number of, factors, including:
- Inflation
Inflation refers to an over-all increase in prices of goods and services over time. Once the general price level rises, money buys fewer goods and services, reducing purchasing power. Some downward movement is anticipated because the pandemic and offer chain bottlenecks recede. However, the prospect that inflation lingers for extended is also high, partly because of the global political and economical challenges, including soaring oil prices. We have all felt inflation in the gas pump and also at the grocery store recently!
- Employment Data
Employment Data means information including the name of every employer and the name, ethnicity, gender, veteran status, zip code, and total hours worked and pay of each employee. Many workers are starting to ask for pay increases to account for rising living costs, while a historically tight labor market has led many firms to boost wages.
How can small businesses prepare for a higher rate?
Consider steps you can take that will help you protect your business finances and reach your purpose in light of the present and future rate hikes. Use an accountant or bookkeeper that will help you choose the right path for your unique business.
Pay down debt: Business owners with fixed interest rate loans are less likely to see an impact on payments from a Federal interest rate increase. As interest rates rise, monthly obligations will increase for variable rate loans, if you have a variable rate loan, ensure it features a long-term so that as rates go up, you can mitigate the increases to monthly payments. Prioritize reducing debt, especially a high-interest charge card balance. Consider consolidating your debt. Listed here are articles in the SmartBiz Small company Blog offering more information on this tactic:
How to Refinance a Business Loan in 7 Steps
Business Debt Relief: How to deal with Small Business Debt
Boost your emergency savings: High inflation shouldn't keep entrepreneurs from stashing a proper sum of money in case of emergencies or unplanned expenses. Learn more about savings strategies here:
Small Business Financing Dos and Don'ts
How to Save Money and Grow Your Business
Stay connected: Entrepreneurs facing an interest rate hike should live within their means, stay connected to their professional network, identify risk tolerance, and focus on long and short-term goals.
Setting Business Goals: An extensive Guide
Turn Every Event Into a Networking Opportunity
Final thoughts
Taking on additional funds for the business is a big decision. However the old adage, \”it takes money to create money\”, rings true for smaller businesses. Proceeds from the right small business loan can be used for capital, debt refinance, marketing, hiring, and much more.
PRO TIP: It's a good idea to lock in an interest rate before additional hikes are put in place in order to secure a flexible rate loan having a long term. SmartBiz representatives are for sale to answer questions you might have about rates, fees, and other loan details. Spark growth and savings by choosing the right option to assist you to succeed.
