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Finances

5 Ways The Fed’s Rate Hikes Could Affect Your Business

May 12, 2017

Confident that the U.S. economy is on firm footing, the Federal Reserve Board has begun gradually increasing interest rates and plans to do so at least two-to-three more times this year with additional increases in 2018. Along with the average consumer, businesses will soon begin to feel the effects in some obvious and not-so-obvious ways. This is especially true for small business (defined as those with 500 or fewer employees) who own or employ about half of the American workforce.

So what should a small business owner be concerned about, or at least aware of?

  1. The most obvious issue is the cost of borrowing money. If you have lines of credit, outstanding loans, or credit card balances with variable interest rates, you will likely see increases in their interest costs. You may want to investigate consolidating outstanding debt into a fixed rate loan.
  2. The good news is that larger lending institutions that have been reluctant to loan money to small businesses while interest rates were lowest, are expected to begin lending more freely. However, all lenders are more concerned with creditworthiness than before the recession, so take steps to improve your credit rating. Make sure you are paying all bills on time and in full, and pay off or consolidate debt, if possible.
  3. As interest rates rise, so will your costs of materials, transportation and other operating expenses. In addition, consumer prices will go up which leads to employee demands for wage increases. All of these pressures will require raising your prices and/or finding ways to make products less expensively.
  4. Since you know that interest rates will continue to rise over the next few years, now is the time to lock in lower rate financing for capital equipment that will help you be more efficient, reduce costs and improve your ability to compete in a volatile marketplace.
  5. In many cases you can reduce cost-per-part and use labor more efficiently by automating some or all of your manufacturing processes. Review factory automation case studies to learn more about these benefits.

As interest rates put pressure on manufacturing costs, it pays to work with a knowledgeable partner who can help you improve productivity and keep costs down. Gosiger is a family-owned and operated machine tool technology provider with 95+ years of manufacturing experience and a number of attractive financing options. To learn more, contact your nearest Gosiger facility.