The last time the Federal Reserve increased rates was in 2018 and many business owners have forgotten the financial impacts an increased rate raising environment creates. Any debt that is on a variable rate schedule will be impacted….if your business has a line of credit, or your house has a home equity line of credit, the payments on this debt increases when the Fed increases the rate. Here are four tips to help protect your financial health.
1. Get a schedule together of all your business and personal variable rate debt.
You can then use many of the free online calculators and plug in what a .25% increase will do to your monthly payments. With 3 Fed increases totaling .75%, the impact is even greater on cash flow and owners need to budget accordingly
2. If you are carrying credit card debt, look for ways to reduce your interest.
You can try shifting the balance to other cards that offer lower rates. Many credit card issuers will make offers for new credit card accounts with incentives like 0% for a promotional period. This can save you hundreds of dollars or more. Take the time to read the fine print on these promotional offers and make sure the new credit card doesn’t charge accrued interest once the promotional period is up
Another option is to try to refinance that debt into a loan with a fixed payment. A cash out refinance on your home mortgage or a second home loan will be cheaper than credit card debt at 18% or higher interest. As an added benefit your credit profile will look better and enable you to secure better portfolios on equipment.
3. This may be your last chance to lock in a great rate on a refinance for your house or business loans.
If you can save .5 point or better a refinance can be a great long term way to improve your monthly cash flow. There are free online calculators that can help you analyze the cost savings of a refinance. You can even use the cost savings on the refinance to make extra principal payments and pay down the note quicker.
4. If you have big acquisitions planned this year, then moving on them now can save you significantly.
If your goal is to purchase real estate or equipment this year, then making the investment now vs waiting until summer or year-end can be a costly mistake. By the end of the year economists are forecasting 3 and possibly 4 rate increases. Both real estate and equipment are increasing in value due to inflation and supply chain issues…the ability to lock in a fixed payment now “Pre-fed” as well as jump in line before other business owners vying for the same equipment/property can make your business better prepared. As an example, one of our customers added a $80,000 excavator in February and we deferred his next payment until June to help his cash flow. He was able to replace older equipment at a better cost of funds vs waiting until Summer.
If you’d like to receive further insight of the current market and/or planning an equipment acquisition, talk to one of our experienced Account Managers at (949) 822-3017.