The Federal Reserve recently approved its second rate hike this year. Learn some surprising ways that interest rate hikes can be a boon for your business.
JUNE 22, 2017
After nearly a decade of holding the interest rates close to zero in order to stimulate economic recovery, the Federal Reserve recently announced a rate hike of a quarter-point to 1.25 percent. This is the second time this year they’ve raised the rate, and they plan to continue gradual increases until interest rates reach 2 percent. While some believe that interest rate hikes could stymie business, there’s various reasons for business owners to celebrate rising interest rates.
Looser Lending Standards May Equal More Spending
“Banks are often the largest beneficiaries of higher rates,” says Steve Hovland, director of research for HomeUnion, a remote real estate investment marketplace. “From a pure cost-benefit standpoint, banks can loosen lending standards when there are higher interest rates.”
With interest rates higher, banks may be more likely to offer more funding options to businesses, because lending will have become more profitable for them—thus making lending more attractive.
If your company is stable and your competitors aren’t, the interest rate hike can give you the opportunity to acquire more market share and grow your business.
“Although more borrowers are likely to default on their purchases, the higher rates paid by other borrowers in that pool will offset the losses,” says Hovland. “This could lift spending among millions more Americans, including millennials.”
Higher interest rates may also benefit senior citizens living on fixed incomes. The rates are likely to result in such consumers getting more revenue from their investments, such as CDs, which can mean more spending at your business.
Interest Rate Hikes May Mean More Funding Options
When interest rates are as low as they’ve been in recent years, it can make for much tighter lending, because the potential profits are too low for financial institutions to take risks.
EARN UP TO 100,000 POINTS. BUSINESS PLATINUM, NEXT STARTS HERE.
Alternative online lending has exploded because of this. Many of these loan providers are more lenient when it comes to lending to businesses, but as a tradeoff they offer loan products with extremely high interest rates. It might now be more possible to get a bank loan instead of paying double-digit online lending interest rates.
Rising Rates Could Lead to More Savings
If you’re a prudent business owner, you have liquid assets, such as a savings account. This gives you access to cash in the case of an emergency and/or if you wish to take advantage of an opportunity that calls for cash.
Low interest rates over recent years have created sluggish growth in many types of investments, including CDs. The rise in interest rates may give you a chance to build up your coffers.
More Competition May Mean Increased Performance
When interest rates rise, companies that are overleveraged and not performing as well as they should tend to feel the pressure. If your company fits this description, the rate hike can provide you with a wakeup call that can lead to some expense trimming and belt-tightening, which can result in a more profitable company. Tough times lead to creative solutions that you might not have reached for otherwise. Learning to operate on less helps boost innovation and keeps your business competitive.
If your company is stable and your competitors aren’t, the interest rate hike can give you the opportunity to acquire more market share and grow your business. You may even be able to lure away top talent from competitors, if conditions are right.
Higher Interest Rates Could Cause Raising Fees
The Federal Reserve generally raises interest rates in order to keep inflation down. When there is low inflation, there tends to be more capital for businesses to work with and as a result, prices for services and products tend to rise. This may mean that you can increase your prices.
When it comes to your business, you may want to ignore the doom and gloom regarding interest rate hikes. You may just find that the rate hikes will actually benefit your company.
Read more articles on financing.
Photo: Getty Images
The information contained herein is for generalized informational and educational purposes only and does not constitute investment, financial, tax, legal or other professional advice on any subject matter. THIS IS NOT A SUBSTITUTE FOR PROFESSIONAL BUSINESS ADVICE. Therefore, seek such advice in connection with any specific situation, as necessary. The views and opinions of third parties expressed herein represent the opinion of the author, speaker or participant (as the case may be) and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions. American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any such opinion, advice or statement made herein.
JUNE 22, 2017
After nearly a decade of holding the interest rates close to zero in order to stimulate economic recovery, the Federal Reserve recently announced a rate hike of a quarter-point to 1.25 percent. This is the second time this year they’ve raised the rate, and they plan to continue gradual increases until interest rates reach 2 percent. While some believe that interest rate hikes could stymie business, there’s various reasons for business owners to celebrate rising interest rates.
“Although more borrowers are likely to default on their purchases, the higher rates paid by other borrowers in that pool will offset the losses,” says Hovland. “This could lift spending among millions more Americans, including millennials.”
Higher interest rates may also benefit senior citizens living on fixed incomes. The rates are likely to result in such consumers getting more revenue from their investments, such as CDs, which can mean more spending at your business.
JUNE 22, 2017
After nearly a decade of holding the interest rates close to zero in order to stimulate economic recovery, the Federal Reserve recently announced a rate hike of a quarter-point to 1.25 percent. This is the second time this year they’ve raised the rate, and they plan to continue gradual increases until interest rates reach 2 percent. While some believe that interest rate hikes could stymie business, there’s various reasons for business owners to celebrate rising interest rates.