The FED Interest Rate Cut and Your Business

The big news last Thursday coming out of the Federal Reserve’s September meeting was the agreement to cut baseline interest rates by 0.25%, the first interest rate cut of the year bringing the borrowing rates to between a 4 to 4.25% range.

With the FED taking this action, it moves the base rate for banks to borrow money between each other lower, which in turn directly affects interest rates paid by consumers and business owners on loans for home, personal, business as well as credit cards.

The recent actions are indeed welcome to small business owners who have been stuck in a precarious position over the last 5+ years, forced into borrowing essential capital to either kick start their business or receive funding to further its growth, at interest rates at a minimum of 7-8%. Compared to the pre-covid era, where rates were near a 1% minimum, businesses have been squeezed tremendously when attempting to attain funding via personal or business loans, resulting in stagnant growth or outright closure.

With rates moving lower and the FED penciling in 2 more rate cuts before the end of the year, small businesses are finally getting some relief. Their ability to borrow capital or pay down existing debts and refinance loans for equipment, credit lines and more has unlocked an avenue for growth business have not seen in what seems like ages.

Credit cards, which have seen historic highs on interest rates, will also be affected in a positive way because lower baseline rates will impact credit card borrowing rates as well. Credit cards see most small businesses charge many of their everyday expenses on them,  from inventory to gas or utilities, a lower rate will have a beneficial impact on a company’s buying power daily.  

While mortgage rates will stay stable for a while (around 6%) as many financial and economic factors contribute to them directly, borrowing rates will see a more near-term effects as will publicly traded small cap businesses in which will receive a boost due to the benefits of lower cost of capital leading to a jump in savings, profits and spending.

What can you do with this information to power your business’ growth? Take a look at your options when it comes to borrowing cash for your company, understand and research the benefits offered by each financial institution available. If already having taken a loan or carrying a high amount of credit card debt, explore a possible refinance or the benefits to taking out a business loan at the lower rate to consolidate, or lower debt accruing at a higher interest threshold.

As your business evolves and begins to scale understanding and being aware of the ever-evolving economic policy is crucial to longevity and financial success.

To gain personalized guidance for your business on this topic and others contact us.

- Vince Calace

Founder - Venture Business Development