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How Small Business Owners Can Deal With Rising Interest Rates

The Small Business Administration (SBA) defines a small business as one that meets certain criteria, such as having fewer than 500 employees and less than $5 million in annual revenue. Small businesses play an important role in the U.S. economy. They create jobs, drive innovation, and contribute to economic growth.


Here are some other facts about small businesses in the United States:

  • They are responsible for 63% of new job creation.

  • They generate 41% of the U.S. gross domestic product (GDP).

  • They are located in all 50 states and the District of Columbia.

  • They are owned by people of all ages, races, and genders.

  • They are the backbone of the U.S. economy.

Often small businesses face many challenges, such as access to capital, competition from large businesses, and government regulations. However, they also have many advantages, such as flexibility, innovation, and customer focus given many are localized.


So today's rising interest rates financial environment by the Federal Reserve is a major challenge for small businesses, as they can make it more expensive to borrow money, invest, and grow. However, there are a number of things that small business owners can do to mitigate the impact of rising interest rates according to James Dean, Director SCS.


Here are some tips:

  1. Get a fixed-rate loan. If you have variable-rate debt, consider refinancing into a fixed-rate loan. This will lock in your interest rate for a set period of time, so you won't have to worry about it rising.

  2. Pay down debt. If you have the ability to pay down debt, do so. This will reduce your monthly payments and make your business more financially stable long-term.

  3. Increase prices. If you can, increase your prices to offset the rising cost of borrowing. However, be careful not to raise your prices too high, or you could lose customers. Create pricing incentives to add value for your customers.

  4. Cut costs. Look for ways to cut costs in your business. This could include things like reducing inventory, negotiating better deals with suppliers, or cutting back on unnecessary expenses. Look for cost efficiency by partnering with other businesses.

  5. Be prepared for slower growth. Rising interest rates could lead to slower economic growth, which could impact your business. Be prepared to adjust your business plans accordingly. Its likely we may experience a "soft landing" or "moderate hard landing", as inflation persists causing the FED to continue with higher rates.

  6. Stay informed. Stay up-to-date on economic trends and interest rate changes so you can make informed decisions about your business.

In addition to these tips, small business owners can also consider the following strategies:

  • Negotiate with lenders. If you have a variable-rate loan, talk to your lender about renegotiating your terms. You may be able to get a lower interest rate or a longer repayment period.

  • Look for alternative financing options. There are a variety of alternative financing options available to small businesses, such as SBA loans, crowdfunding, and merchant cash advances. These options may offer lower interest rates or more flexible terms than traditional bank loans.

  • Focus on cash flow. One of the best ways to weather rising interest rates is to have a strong cash flow. This means making sure you have enough money coming in to cover your expenses. You can improve your cash flow by collecting payments from customers quickly, managing your inventory carefully, and negotiating better terms with suppliers.

  • Be patient. Rising interest rates are a short-term challenge. The economy will eventually recover, and interest rates will likely fall back down. In the meantime, focus on staying profitable and building a strong foundation for your business.

A few companies to study offering creative pricing strategies often using mobile apps that retain and grow their customer base include;

  • Amazon offers a variety of pricing incentives, including free shipping, discounts for Prime members, and price matching.

  • Target offers a variety of pricing incentives, including Cartwheel deals, coupons, and gift cards.

  • Costco offers a membership program that provides discounts on a variety of items.

  • Nike offers a loyalty program that rewards customers with points for every purchase. These points can be redeemed for discounts on future purchases.

  • Adobe offers discounts for students, teachers, and non-profit organizations.

  • Microsoft offers discounts for students, teachers, and businesses.

  • Spotify offers a student discount that is half the price of the regular plan.

  • Netflix offers a family plan that allows up to 4 people to watch at the same time for a discounted price.

  • Amazon Prime offers free two-day shipping and other benefits for a monthly or annual fee.

  • ALDI is a discount grocery store that offers a variety of pricing discounts, including weekly specials, BOGO offers, and coupons.

  • Walmart is a general merchandise store that offers a variety of pricing discounts, including rollback prices, clearance items, price matching and coupons.

By following these tips, small business owners may weather the storm of rising interest rates and keep their businesses healthy. And there are many alternative sources of capital available to small businesses, in addition to traditional bank loans. Some of these options include:

  • Crowdfunding. Crowdfunding is a way to raise money from a large number of people, typically through online platforms. Consider the different types of crowdfunding, such as equity crowdfunding, debt crowdfunding, and rewards-based crowdfunding. Explore the following funding networks including ... KickStarter, Indiegogo, GoFundMe, Patreon, and SeedInvest.

  • Peer-to-peer lending. Peer-to-peer lending is a type of lending where individuals lend money to each other directly, without the need for a bank. This can be a good option for small businesses that have difficulty qualifying for a traditional bank loan. Explore the following Peer-to-peer lending networks including Prosper, LendingClub, Upstart, Funding Circle, and Kiva.

  • Microloans. Microloans are small loans, typically $5,000 or less, that are designed to help small businesses get started or expand. Microloans are often offered by nonprofit organizations.

  • SBA loans. The Small Business Administration (SBA) offers a variety of loan programs to small businesses, including the 7(a) loan program, the 504 loan program, and the microloan program.

  • Vendor financing. Vendor financing is a type of loan where a vendor provides a loan to a small business to purchase goods or services from the vendor. This can be a good option for small businesses that need to purchase inventory or equipment.

  • Credit cards. Credit cards can be used to finance a variety of business expenses, such as marketing, travel, and inventory. However, it is important to use credit cards wisely and pay off the balance in full each month to avoid high interest charges.

  • Line of credit. A line of credit is a revolving loan that allows a small business to borrow money as needed. This can be a good option for businesses that have fluctuating cash flow.

  • Bootstrapping. Bootstrapping is a way to grow a business without any outside investment. This can be done by using personal savings, reinvesting profits, and bartering.

While, the best alternative sources of capital for a small business will depend on the specific needs of the business. It is important to compare the different options available and choose the one that best meets the business's financial goals and risk tolerance.


Here are some additional tips for small business owners considering alternative sources of capital:

  • Do your research. Before you apply for any type of financing, it is important to do your research and understand the terms and conditions of the loan.

  • Talk to your banker. Your banker can help you assess your financing needs and recommend the best options for your business.

  • Get multiple quotes. When you are applying for financing, it is important to get multiple quotes from different lenders. This will help you get the best possible terms.

  • Be prepared to provide financial information. Lenders will need to see your business's financial statements and other financial information before they can approve a loan.

  • Be patient. The approval process for alternative financing can take longer than traditional bank loans. Be patient and don't give up if you don't get approved the first time.

By following these tips, small business owners can find the alternative source of capital that is right for their business. And finally here are some additional resources that small business owners may find helpful:

  • The Small Business Administration's website www.sba.gov has a wealth of information on a variety of topics, including financing, marketing, and business planning.

  • The National Federation of Independent Business www.nfib.com is a trade association that provides advocacy, education, and resources for small businesses.

  • SCORE www.score.org is a nonprofit organization that provides free business counseling and mentoring to small business owners.

Rising interest rates can be a challenge for small businesses, but they are not insurmountable. By following the tips in this article, small business owners can take steps to mitigate the impact of rising interest rates and keep their businesses healthy.


I hope this article was helpful. Questions Call 440-597-3964



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