The Fed is preparing to raise interest rates in response to higher confidence and a stronger economy, but small biz shouldn’t worry yet.
After years of struggling, the economy is back on its own two feet and small biz confidence is inching higher. In response to the calmer climate, the Federal Reserve will soon raise the federal interest rate from the low recession stimulus rate.
Economists predict there is a 60 percent chance the Fed will hike rates in September, and an 85 percent chance that rates will rise by the end of the year, according to a Reuters poll.
But for the time being, it should still be smooth sailing for small biz. The Fed’s initial rate hike is predicted to be small: about 25 basis points, according to The Street. It’s small enough that it shouldn’t affect small biz financing, at least in the short run. In the long run, however, subsequent rate hikes are expected to take a heavier toll on small business, especially in more capital-intensive sectors like construction.
Small businesses have been borrowing more than ever and at a rate nearly 20 percent higher than just a year ago. But economic analysts recommend slow and steady growth as the best strategy for business owners to keep the ship steady.
“It’s important for small business owners to be thinking about investing at the right time in their business,” said Candace Klein, Chief Strategy Officer at online small business lender Dealstruck, in the report. “When they start out, a lot of small business owners spend money on their inventory, employees, healthcare and benefits before they have cash coming in, and in small business, cash is king.”
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