How the 2022 interest rate hikes may impact your small business

The Federal Reserve (Fed) has enacted its second rate hike of 2022 and it is predicted that up to six more hikes will happen throughout the year.

The Fed is raising rates to combat rising inflation. According to Investopedia’s® Guide to Inflation, inflation is the rate at which the value of a currency is falling and the general level of prices for goods and services is rising.

Here’s a few ways your small business may be impacted by a rate hike and why you should seek funding now if your business is in need of capital.

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Why are interest rates being raised?

In short, the Fed is trying to slow economic inflation. “Inflation is much too high,” Fed Chair Jerome H. Powell said in a recent news conference. “We understand the hardship it is causing, and we are moving expeditiously to bring it back down. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.”

Powell is the Chairman of the Federal Reserve System, the central bank of the United States. The Fed conducts the nation’s monetary policy to promote maximum employment, stable prices and moderate long-term interest rates in the U.S. economy.

Ways your small business may be affected

High inflation and interest rates changes can be challenging for small business owners. Here’s ways your business may be affected.

1. Small business variable-rate loan payments increase

If you have a fixed-rate small business loan, you’ll see no impact on your rates and payments as the rate is fixed for the life of the loan. If you have a variable-rate loan, your rate will increase with each hike. However, the anticipated hikes are relatively low.

Here’s an example outlining how an existing variable rate SBA loan payment might be affected if you have an SBA loan with a 10-year term from a bank in the SmartBiz® network:

If a business owner secures a $100,000 SBA 7(a) loan and the interest rate rises from 6.25% to 7.75%, for example, the monthly payment only increases by $78.00 per month. (From $1,122.00 to $1,200.00)

In short, the SBA loan’s 10-year term means variable rate loan payments will not skyrocket.

It’s also important to note that SBA loans from banks in the SmartBiz network* have no prepayment penalty, so these loans can be repaid sooner if cash flow allows. This can help you build business credit, letting you borrow more at a lower cost if you need future funding.

If you need funds quickly and want to lock in your interest rate, consider a Bank Term loan from a bank in the SmartBiz network. Proceeds from a Bank term loan can be used in a variety of ways to meet your business goals. Funds can be used for working capital, debt refinance, new equipment purchases and more. Additionally, paying off a Bank Term loan responsibly helps to build business credit. Start an application here without impacting your credit score**.

*Interest rate on bank term loans depend on loan term and the applicant's credit and financial profile.

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2. Credit card payments increase

Do you use a business credit card and carry a balance? If so, the Fed hike will raise your monthly payment.

A good strategy is to pay off outstanding credit card debt as soon as possible in light of future rate hikes. You may have the ability to consolidate debt by transferring your credit card balance with a high rate to one with a 0% APR. To learn more about this strategy, read the Best Balance Transfer Credit Cards feature on Investopedia.

Interested in more information about funding your business with a business credit card? Review this article from the SmartBiz Small Business Blog: Finding the Right Credit Card for Your Small Business.

3. Business growth issues

There might be a dip in consumer spending because of the rate hike and this can impact business growth.

Even if your industry is “recession proof”, pay attention to the economic landscape and put strategies in place to help your operations remain stable.

Business Growth Plan: The Comprehensive Guide is a series of steps your company can take to reach short-term growth goals. Our guide can help you consider your own unique business growth plan.

Final thoughts

If your small business is in need of funding, it’s a great time to apply before rates rise again. Start an application and we’ll run a soft credit inquiry that will not affect your credit score.* Our team of financial professionals can help you understand the funding options that might be available for your unique business.

Start An Application Today

The SmartBiz team appreciates all you do. Visit the SmartBiz Small Business Blog for information on credit, financing, marketing, technology and more.

**We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

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