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How to Prepare Your Business for Rising Interest Rates

In response to COVID-19, the Federal Reserve took decisive action to support the U.S. economy. In addition to buying bonds from banks, it slashed the federal funds rate to just 0.25%. The federal funds rate, of course, represents the interest rate that banks are allowed to charge. A low federal funds rate makes borrowing money easier and more affordable for businesses.

But there’s a good chance that the federal funds rate will increase in the near future. According to a report by Reuters, half of the Federal Reserver’s policymakers believe a rate hike could occur as early as next year. What can you do to prepare your business for rising interest rates exactly?

How to Prepare Your Business for Rising Interest Rates

Convert to Adjustable-Rate Loans

Assuming your business has one or more adjustable-rate loans, you may want to inquire about converting them into fixed-rate loans. Fixed-rate loans have a static interest rate that doesn’t change. In comparison, adjustable-rate loans have a fluctuating interest rate that does change. By converting an adjustable-rate loan into a fixed-rate loan, you can lock in a low interest rate before the inevitable rate hike.

Choose Short-Term Loans

Another tip to prepare your business for rising interest rates is to choose short-term loans. Short-term loans are defined by their short repayment period. Most of them range from just six to 12 months, meaning you’ll half a year to one full year to repay them. If you get a short-term loan now, the term may end before the Federal Reserve raises the federal funds rate.

Pay Off Loans Early

Of course, you can pay off loans early to prepare your business for rising interest rates. Adjustable-rate loans may become more expensive in the near future. By paying them off them early, you won’t get slapped with higher interest fees.

Consider Equity Financing

You can avoid interest altogether by choosing equity financing for your business. Equity financing doesn’t involve debt. Instead, it’s a form of financing in which you sell partial ownership of your business to an investor or investment firm. Sale of ownership can be done with stock shares. You can sell shares of your business’s stock to an investor or investment firm. You can then use this capital to finance your business. Since equity financing doesn’t involve debt, you won’t have to pay interest on it, nor will you have to worry about rising interest rates.

This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • October 7, 2021

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