Many business owners are concerned about inflation, the recent market sell off, and the increasing cost of funds in this rate rising environment. The Fed’s second rate hike of the year, a half a percent, has affected new loans, variable rate debt, and mortgages. In addition, the Fed is anticipated to implement additional 0.5% rate hikes in June, July and September. There are a few things business owners can do to plan for the balance of the year
1. Do not delay on purchases that will benefit your company.
Putting off the purchase of equipment means not only do you miss out on the cost savings/revenue the equipment would generate but also incur higher interest rates when you are ready to purchase. Many small business owners wait until the end of the year to do any tax planning/year end acquisitions. If your company is already having a record year, then waiting 6 months to do your year end purchase while the cost of funds keeps increasing is not in your best interest.
2. Save your working capital/cash.
Paying cash to avoid paying higher interest rates is not a prudent strategy. In any rate rising environment the more fixed rate debt/fixed leases a company has the better as owners can save their cash for investments that generate a higher return than the cost of interest on the equipment. If a company offers you deferred payments on equipment then take advantage, by the time you make your next payment, the Fed will most likely have hiked 3 more times.
3. If you are trying to sell equipment, your house, your business or any other assets then get them listed as soon as possible.
The longer you wait the less of a chance you can get top dollar on your sale as potential buyers will be impacted by the increase cost of borrowing. Mortgage rates alone have jumped from the 3% range to the % range the last few months. For every 1% increase on mortgage rates roughly $65 is added to a person’s monthly payment per $100,000. That means a $500,000 house now costs $325 more per month and becomes less affordable for potential buyers.
4. Look at other potential sources of funding outside of conventional banks.
There are leasing companies that have their own capital and are better insulated from the rising cost of funds in the marketplace. A brief consultation with them may give you a better understanding of the best way to grow your business. Just because your bank treated you well the last few years doesn’t mean they can be the best resource going forward to grow your business. If you are contemplating the purchase of your location, see if landlord financing is an option. This can be a win-win as the landlord gets a guaranteed rate of return and both parties save on closing costs/realtor fees
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.