When the Federal Open Market Committee (FOMC) meets a little later this month, many expect to see slightly higher rates. The Fed has been raising rates slowly over the last year or so. And, as long as the economy continues to recover, policymakers are likely to keep on this path.
As you look to position your business finances, it’s important to consider the impact of higher rates. Here are some things to consider before interest rates rise even higher in the next couple of years:
1. Review Your Current Loans
Do you have variable rate loans? It’s common for businesses to get financing. However, when interest rates rise, you run the risk of paying more to your lender. In order to avoid getting hit with bigger interest charges, it might make sense to refinance your loans to a low fixed rate.
Variable rates can mean higher payments, eating into the money you can use for your business. Getting a fixed rate loan before rates rise can be a solid business move.
2. Now Might Be the Time to Buy
Have you been thinking about buying real estate for your business? If so, now might be the right time to buy. Mortgage rates are expected to head higher as the economy picks up and as Fed decisions influence Treasury rates. Now could be the time to lock in a fixed-rate mortgage on a piece of business real estate.
One strategy might be to buy an office building, locate your own business in one of the units, and then rent out the remaining units to other businesses. This can be a great way to improve cash flow while owning business real estate.
Only take the plunge if you know you are ready to buy for your business, though.
3. Cash Out Some of Your Equity
Do you already own business real estate? If you have equity, it might not be a bad idea to take a low-rate fixed loan out against it and use the money to pay off a variable rate loan or to invest in your business. For business owners who know they will expand in the next couple of years, but need a little more capital to make it happen, making this move now, before interest rates rise, can be smart.
Make sure to carefully consider your situation before moving forward, though. Once you take out that equity loan against some of your property, you could end up losing it if you fall on hard times and can’t make your payments.
4. Look to the Small Business Administration
Don’t forget about the Small Business Administration (SBA). If you need a little extra capital to buy equipment, the SBA has its 504 program. You can use this program for refinancing and real estate purchases, if you qualify. It’s possible to access financing with 10% down, and you can get a low-interest loan. The terms are long, and that’s good news if you need affordable payments for your loan.
In the end as interest rates rise, you need to be ready. Prepare your business now by making smart financing decisions.