Ever since the depths of the Great Recession and the collapse of the housing market, the Federal Reserve has kept interest rates at close to zero. Those artificially low interest rates were designed to spark a wave of hiring, encourage investments and give home buyers greater confidence and lower mortgage payments.

 

For the most part, the actions of the Federal Reserve were moderately effective (if reactionary), but now things are changing. The Federal Reserve has recently expressed confidence in the state of the employment market, the housing market and the economy as a whole, and that means interest rates are headed up. Interest rates have already increased by a quarter of one percent, and economic experts are fairly certain that more hikes are on the way.

 

The Impact on Small Business

 

So what does it all mean to small business owners, and how can those professionals protect themselves in the face of rising interest rates? As with everything else, future increases in interest rates are likely to bring both opportunities and risks to small business owners, and how those business owners position themselves and their firms could make all the difference.

 

The Cost of Borrowing Could Increase

The most obvious impact of rising interest rates for small business owners is that the cost of borrowing could be going up. According to banks in Utah, business owners who are thinking about borrowing money or taking advantage of a line of credit may want to do it now, before those costs increase.

 

By working closely with their bankers and communicating their needs, small business owners can mitigate the harmful effects of interest rate increases and maintain the flexibility they need. Banking is an important part of doing business, and entrepreneurs do not have to let rising interest rates get in the way.

 

A Better Return on Unused Funds

 

Every small business owner should have a separate bank account for their firm, and now that interest rates are going up, their options may be getting better. In the days of the Great Recession and near zero interest rates, it was often hard to find a business savings or checking account that even paid interest, but that may be changing.

 

Now that rates are going up, small business owners may find more lucrative options for their free cash. Seeking out high-yield business savings and checking accounts is one way for business owners to squeeze more money out of their operations without putting their cash at risk.

 

Interest rates have been low for quite some time, but they are finally headed up. As a small business owner, now is the time to get ready for this new reality, and that means taking a close look at your banking relationship and looking for smart ways to make the most of it.

 

References

Economic Cycle Research Institute

Central Bank Utah