Many business owners had hoped that interest rates would come down relatively quickly in 2025, but they were once again disappointed when the Federal Open Market Committee (FOMC) opted to not change the federal funds rate during its meeting on June 17 and 18.
With a series of cuts in late 2024, easing inflation and a slowing economy, the optimism about further rate cuts in 2025 seemed justified. Even experts, including Barclays, had anticipated a 25 basis points drop in June, which didn’t materialize. In early January of this year, Bankrate had an even more aggressive prediction of three cuts resulting in a key borrowing benchmark in the 3.5 to 3.7 percent range.
Time to Refinance? The Rate Wait Continues
We talked to many agency owners late in 2024 who wanted to wait to refinance their double-digit loans in anticipation of rate cuts in 2025. The FMOC hasn’t made any reductions yet in 2025, so many agency owners are still waiting. For a $500,000 8-year loan at a 12.0% rate, the interest savings could have been $7,000-9,000 over the last six months if they qualified for an 8.5-9.0% rate. So does it make sense for you to refinance now or should you continue to wait until rates drop? It’s a difficult decision to make, especially in today’s economic climate, with many variables playing into our nation’s financial health and no real certainty about when the FMOC will move and in what direction.
Although it’s not wise to make financial decisions in a vacuum, you can’t control external factors and government actions. That’s why taking a balanced approach is the smart move, knowing that current interest rates are only one element that goes into determining the “right” time to refinance capital loans, credit cards, or other debt that is slowing down your growth.
Therefore, the best place to start in determining refinancing timing is to look at your own agency’s financial health, the state of the insurance industry overall and how well you’re positioned for growth. Here are some specific items to assess when considering refinancing your agency debt:
- Interest Rate(s): Take a look at every loan or debt you have, including business credit cards or loans you may have forgotten about. We can help determine if you’d benefit from refinancing or if your best option is to keep the existing loan(s).
- Length of Loan Term: If loans with double-digit interest rates are nearing maturity within the next six months, the cost of refinancing may negate the benefits of paying off the loan as scheduled unless you are looking for additional working capital.
- Other Loan Terms: Check out other terms that may affect the logic of refinancing. We can review loan agreements with you to identify the pros and cons of multiple options.
- Current Cash Flow: Because revenue varies over the course of the year (or from year-to-year), you may need to reduce your monthly expenses. While this sometimes can be accomplished by refinancing to a longer term, it’s important to recognize that this may not save money over the long run even if it’s helpful for day-to-day budget needs.
- Additional Capital Needs: If your agency is in expansion mode and you need funding to cover technology, staff, marketing, or other growth drivers, refinancing and consolidating your existing loans could position you to acquire the working capital needed to take your business to the next level.
- Ability to Qualify and Repay: If you decide to pursue refinancing, you’ll still need to be able to qualify for refinancing. We can analyze how your leverage has changed over time and help you determine the right amount of leverage to take on to efficiently use debt to fuel growth.
At First Mid, we are committed to helping YOU make the right decisions for YOUR agency and goals. We encourage you to tap into our personalized service and specialized agency expertise, so we can provide you with the support needed to keep growing your business. Contact our team today by calling 877-894-2785, emailing agencyfinance@firstmid.com, or completing our online form.
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