The Dos and Don’ts of Financing Your Business When Interest Rates Are High

There are several things you should and shouldn’t do when financing your business in an era of high interest rates. Lenders typically charge interest on loans. In addition to paying back the principle — the amount of money that you actually borrow — you’ll have to pay interest. As interest rates begin to creep up, though, it can pose financing challenges for your business.

The Dos and Don’ts of Financing Your Business When Interest Rates Are High

Do: Monitor Your Credit

Interest rates on loans are often influenced by credit scores. Borrowers with a high credit score may have a lower interest rates than borrowers with a low credit score. By monitoring your credit, you can identify mistakes or discrepancies that could otherwise force you to pay a higher interest rate on loans.

Do: Beware of Variable-Rate Loans

You should beware of variable-rate loans. Variable-rate loans are characterized by an adjustable interest rate. The interest rate on a variable-rate loan may increase or decrease over time. Even if it’s originally low, the lender may increase the interest rate later down the road.

Do: Consider a Line of Credit

Rather than using a loan, you may want to finance your business with a line of credit. A line of credit is a revolving credit account from which you can borrow money. Some people assume that it works just like a loan, but this isn’t the case. With a line of credit, you’ll only pay interest on the amount that you borrow. If you don’t borrow any money from the revolving credit account, you won’t be charged any interest.

Don’t: Ignore Short-Term Loans

When seeking financing for your business, don’t ignore short-term loans. Both short-term and long-term loans typically have interest. The interest rate for short-term loans, however, is oftentimes lower than that of long-term loans. You may secure a lower interest rate on a one-year loan, for instance, as opposed to a two- or three-year long.

Don’t: Borrow Too Much

Another common mistake to avoid when financing your business in an era of high interest rates is borrowing too much. Assuming you use a traditional loan, you’ll be charged interest on the full amount of the principle, regardless of how much of that money you actually apply toward your business’s operations. You may borrow $250,000 while only using $100,000. Regardless, you’ll be charged on the full $250,000. By only borrowing what your business needs, you’ll save money on interest.

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.