You probably read the news online or saw it on television. On Wednesday, September 18, 2024, the Federal Open Market Committee (FOMC) announced an interest rate cut of half a percentage point (50 basis points). This is the first rate cut since March 2020. This rate cut reflects stability in the U.S. economy, positive employment numbers, and softening inflation.
As a business owner, you might wonder about the potential impact of an interest rate reduction on your company's day-to-day activities. This blog article from Huddle Business Capital explains seven benefits of low interest rates.
Why do interest rates matter?
Before discussing how low interest rates benefit businesses, we want to explain why interest rates matter. In a nutshell, interest rates determine the cost of borrowing money. When interest rates are low, loans and credit lines become cheaper for consumers and businesses, encouraging spending and investment. This can lead to economic growth as more money goes through the economy. Conversely, high interest rates make borrowing more expensive, which can slow down economic activity but help control inflation.
In the U.S., interest rates are determined by the Federal Open Market Committee (FOMC). The FOMC comprises the Federal Reserve Board's governors and the Federal Reserve Bank's presidents. These individuals meet eight times a year and change interest rates if warranted based on economic conditions. The main goal of the FOMC when determining interest rates is to maintain a balance that promotes economic growth while keeping inflation in check.
1. Greater chance of funding approval.
When interest rates are low, you have less in total borrowing costs, which helps increase the odds of loan, leasing, and financing approvals. These business lending products are less risky for you and your lender because the lower interest rate means lower monthly payments that are more manageable.
2. Increased borrowing power.
Have you ever sought a small business loan or funding to finance or lease equipment only to be approved for an amount lower than you requested? If so, you are not alone, as countless business owners experience this. However, lower interest rates can increase your borrowing power because you pay less interest.
3. More affordable business funding.
Low interest rates can reduce borrowing costs on a working capital loan. Whether you run a startup or a long-established company, an affordable working capital loan is an excellent short-term option to achieve your goals. You can use a working capital loan to buy inventory and supplies, pay bills, launch a marketing campaign, and more.
Next, a low interest rate can be a game changer if you want to finance or lease new or upgraded business equipment. When interest rates drop, financing and leasing business equipment is more affordable. Plus, you might be able to afford more advanced equipment, machinery, technology, and vehicles than you would otherwise overlook.
4. Reduced financial obligations.
You can reduce your monthly financial obligations when you secure business funding at a low interest rate. And the money you save from lower payments can be set aside for future business needs. You can save it or put it toward essential business needs such as inventory purchases, hiring employees, or expansion efforts.
5. Refinancing and consolidation opportunities.
When interest rates drop, it is an excellent time to refinance or consolidate your existing business loans, equipment loans, or equipment leases. Refinancing or consolidating higher-rate funding products with one that has a lower interest rate can reduce your monthly payments. The additional savings can be reinvested into your business.
6. Increased sales revenues.
Low interest rates can result in more disposable income for consumers. That means they are more likely to spend money on products and services, perhaps those your business sells. A growing demand for your products and services can boost sales revenues and result in more profits.
7. Lower cost of goods and supplies.
If your company buys goods and supplies from suppliers, you understand the importance of minimizing costs. The good news is that low interest rates can lower the cost of goods and supplies you purchase. This can create a money-saving domino effect that benefits your business and customers.
Conclusion.
It is impossible to predict how long the current interest rates will remain. Countless economic indicators impact the FOMC's decisions. So, remember that a lower interest rate for any business funding product is temporary and subject to change. That said, obtaining a low-cost business loan, line of credit, equipment loan, or equipment lease can provide your company with welcome financial relief.
If you are in the market for business funding with favorable rates, flexible terms, and fast turnaround times, Huddle Business Capital welcomes the opportunity to work with you.
Disclaimer.
Huddle Business Capital is not affiliated with nor endorses the Federal Open Market Committee (FOMC). This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.
