If your agency has been considering taking on business debt to accommodate expansion, necessary technology upgrades or other needed business improvements, we’re here to help. We can work with you to determine a good time to make those investments, as well as provide insights into the best financing options.
The State of Rates Today
At the beginning of May, the Federal Reserve approved its tenth interest rate increase in just a little over a year and hinted that the current tightening cycle is at an end. This conveys potential optimism that the Federal Reserve’s efforts to slow inflation may be starting to take effect. It also serves as a possible indication that rate increases may be slowing down from the frenzied pace of 2022 when rates went up a total of 375 bps over the course of seven different increases.
Predicting the precisely “right” time to borrow at just the “right” rate isn’t an exact science. However, in your efforts to make prudent business decisions, the current economy could be a good environment to consider variable rate debt for a line of credit, working capital or capital improvements.
While some experts anticipate that interest rates could still creep up a bit to help drive inflation down to 2%, many also say that interest rates — which have reached the highest level since August of 2007 — may begin to level off later this year or in early 2024.
Variable vs Fixed Rate Loans
While a fixed-rate loan provides predictability in your monthly payments, a variable-rate loan can be a good option when interest rates seem to be at — or nearing — their peak. Because a variable rate loan is written based on today’s current rates, if rates go down, so will your payment.
Of course, the flip side of that potential benefit is the reality that if rates increase, your payment will get larger. Here are some other considerations:
- If rates go down, this reduces your loan payments and frees up your cash flow for other needs.
- Depending on your agency’s growth trajectory and other business factors, you may later decide to refinance your variable rate debt to a fixed rate loan.
- Fixed interest rates will normally be somewhat higher than variable rates as lenders typically add in a cost to fix the rate. This is because the lender bears the risk of holding that fixed rate debt at a cost that may fluctuate.
We’re here to help you.
As previously mentioned, there’s no way to know the exact path of interest rate increases or decreases, but it always makes sense to talk about how changes will impact your business. If you are considering new lending opportunities or want to discuss your current debt, we can help guide you on your rate options and how they may impact your business. Reach out today.
