Are you feeling the pain of bigger payments on your variable rate agency loans or SBA notes with variable rates?
Inflation Matters
Last year, we experienced the highest inflation levels in 40 years, which has a variety of ramifications for agency owners.
Overall, your agency is probably absorbing cost overages, cutting budget items and looking for larger places to save — while also managing personnel costs in order to retain key support staff in a tight job market.
Although wages are growing, they’re not keeping pace with inflation — which means your clients and prospects are feeling a budget squeeze which can lead to a less stable book of business for your agency.
One key reason the Federal Reserve has been raising rates is because it’s a time-tested technique for slowing inflation.
As previously mentioned, today’s higher interest rates may already be affecting your loan payments.
There are pros and cons to the various types of loans available to agency borrowers today.
Fixed Rate Loans
The interest rate and monthly payment remain the same for the duration of the loan.
Variable Rate Loans
The interest rate varies based on a rate determined by a benchmark, such as the Prime Rate which is set by individual banks but influenced by the Federal Reserve Board. U.S. Treasury rates may also be a benchmark. Your payment amounts will fluctuate when benchmark rates move, depending on the economic climate and the Federal Reserve’s policies.
Adjustable Rate Loans
This type of financing has an initial period that may be 3 to 5 years, during which the interest rate is fixed giving you predictable loan payments. After that period, the rate shifts to a variable rate for the remainder of the loan. It may also adjust to another fixed rate based on the benchmark rate at the time of adjustment.
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