When interest rates move, small business owners often wonder whether they should change their plans. With the prime rate recently increasing to 7%, now is a good time to understand how higher rates may affect your business, but not necessarily a reason to put important decisions on hold.
Start by looking at your existing debt. Many business lines of credit and other variable-rate loans are tied to the prime rate, which means your borrowing costs may increase when prime rises. Review how your loans are structured, what a rate change means for your payments, and whether there may be opportunities to adjust your financing.
If you’re considering borrowing, focus on the bigger picture. The interest rate is important, but so is what the financing allows your business to accomplish. If a new piece of equipment can increase productivity, additional inventory can help you meet demand, or an expansion can support growth, waiting for rates to fall could mean delaying an opportunity that makes financial sense today.
The key is to run the numbers. Understand the total cost of borrowing, how the payment fits into your cash flow, and the return you expect from the investment. Interest rates will continue to change, which is why it helps to have a trusted advisor who knows your business. Talk with your banker about your goals, cash flow, and financing options so you can evaluate the numbers together and make a decision based on what makes sense for your business.
Originally published in Small Business Monthly’s October publication by Pete Zeiser, President – Chesterfield Commercial at Midwest BankCentre.