How Will the Fed’s Interest Rate Cuts Impact Lending?

As a small business owner, financing is one of the most significant challenges that you can face. Whether it’s getting capital for some new equipment or you want to expand your operations, you need to be strategic about how and when you get a loan.

Fortunately, the Fed just handed you an opportunity to take advantage of as soon as possible. At the end of July, the Fed announced that it would be cutting interest rates by a quarter-point. Today we want to look at the financial impact of that decision, and what it could mean for you and your business.

A Brief History of the Fed and Interest Rates

Before we look at the current impact of this cut, it helps to understand why it matters in the first place. The Federal Reserve sets the funds rate and adjusts it every six weeks or so. There are three primary goals that the Fed tries to accomplish by moving the rate up or down. These goals are maximizing employment across the country, moderating long-term interest rates (i.e., mortgages), and stabilizing prices (inflation).

Since 2008, the Fed has mostly raised the funds rate. This year marks the first time that they’ve cut it since the Great Recession. Typically speaking, the purpose of lowering the interest rate is so that it’s much easier for borrowers to get money.

Lenders of all kinds pay close attention to the Feds rate to set their own interest percentages. Mortgages, business loans, credit cards, and auto loans are all examples of financing that can be impacted when the rate goes up or down. So, when the Fed announces a drop of a quarter-point, that is good for anyone with current short-term debt and anyone looking to borrow in the near future.

What This Means for Your Business

Currently, we are in the longest expansion of the US economy in its history, and although a rate reduction can be a sign of that growth weakening, it should be seen as an opportunity. If you are currently engaged in a small business loan, you should be happy because now your interest rates will decrease.

If you’ve been thinking about borrowing for any reason (expansion, new equipment, etc.), now is the perfect time to talk to a lender. While we estimate that the rate will stay low until the end of the year, it may change next year or beyond. Thus, you need to capitalize on the decrease as soon as possible.

That being said, now is not the time to go all-in on a new expansion plan before you’re ready. Again, when the Fed lowers interest rates, that usually means that a downturn has either already happened or is going to happen in the near future. Before the Great Recession, the Fed didn’t act at all, and once the market crashed, they lowered rates significantly to help stabilize the economy.

In this case, the Fed is trying to be more proactive about rate adjustments than reactive. Not only that, but the Reserve has been getting pressure from the White House to lower rates for some time, so that also played into the decision.

Overall, if you’re not already in a position to expand your business operations, don’t take this as a sign that you need to borrow money. Realistically, if you were already thinking about getting extra capital for your business, this change is a welcome sign. Otherwise, it would only affect any loans you currently have outstanding, including credit card debt.

Contact Us Today

One challenge of getting the financing you need for your business is finding the right lender. We understand the pain that small business owners feel when trying to get a loan, which is why we offer high-quality lending services. We also specialize in providing financing to new businesses, as well as smaller companies that may not have the collateral necessary for a traditional loan.

Give us a call today to find out more about our loan options and see how the Fed’s decision will impact your interest rates. Now is an excellent time to borrow, so take advantage while you can.

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