Small Businesses May Want To Pursue Loans Soon – Before Fed Boosts Interest Rates

If you are a small business owner, there are some compelling reasons why you should consider applying for a loan now. Perhaps the biggest factor to act immediately is to help reduce your borrowing costs before the Federal Reserve boosts interest rates again. The nation’s central bank has raised interest rates twice in 2018 and has signaled two more hikes for later this year.

As the Fed bumps up rates, typically the cost of small business loans, credit cards, adjustable rate mortgages, as well as other loans, move in tandem with those actions.

The federal funds rate, the amount which banks charge each other for overnight loans, last rose in June from 1.75% to 2%. The Fed anticipates that the rate will be 2.4% by late 2018, 3.1% by the end of 2019, and 3.4% as 2020 comes to a close.

Small businesses accepting a loan for growth reasons face beefed-up capital costs as interest rates rise. That can include firms that have borrowed funds before since most small business loans carry floating or variable rates instead of fixed rates. The bottom line: The longer you sit on the sidelines to secure a loan, the more expensive that type of financing will likely be.

Another reason why it’s perhaps timely to pursue financing is that small business loan approval rates for big banks reached another record high in July 2018, according to the Biz2Credit Small Business Lending Index released earlier this month.

The July approval percentage for big banks—those with assets of $10 billion or more—jumped two-tenths of a percent from June’s figure of 26.1% to 26.3%. The findings are based on Biz2Credit’s monthly report, which analyses over 1,000 credit applications made by small businesses via Biz2Credit’s online lending platform.

“The Fed rated the economy as strong this month, and the Jobs Report found that the economy keeps adding jobs in many sectors. In addition, there is optimism among small business owners. All of these factors create an atmosphere that is ripe for small business lending,” stated Biz2Credit CEO Rohit Arora, in a press release. “Business owners continue to invest in their firms and are finding success in securing capital, according to our latest figures.”

At regional and community banks, business loan approval rates also increased. Those banks approved 49.7% of the funding requests they received in July, up one-tenth from June. It marked the highest figure for small banks since December 2014.

“Small banks continue to approve SBA loan applications, which enable younger, growing companies to secure financing because government backing helps reduce lenders’ exposure to risk,” Arora stated. “Smaller banks are a good source of capital for startups and companies with less than stellar credit rating.”