Trends have a way of continuing ~ usually for long periods of time. Think about it ~ the American Economy is a very, very large ship and it take time to make shifts. However, a shift has indeed been made. The prime interest rate has increase 4 times in the past couple of years – including twice since our last article on the subject at hand. Here is that history and the shaping of what we think is a long-term trend.
|December 16, 2008||3.25|
|December 17, 2015||3.5|
|December 15, 2016||3.75|
|March 16, 2017||4.00|
|June 15, 2017||4.25|
(The Current U.S. Prime Rate)
For many of the last several years, our beloved central bank has employed a near zero interest rate policy—or ZIRP as the financial world has come to know it. Central banks typically employ such dramatic measures to help the economy recover from severe injury (like 08/09) and give the economy training wheels so to speak while it is learning how to function again. And our training wheels have been on for a very, very long time. In December 2015, that policy came to an end with a .25% increase in the Fed Funds rate. So, what does it all mean to the business owner?
Accordingly, as we have previously suggested, business owners need to start thinking longer term. The Fed will most certainly not stop with the .25% rise in rates. In fact, we should all be planning on an environment of rising rates for the foreseeable future. The Fed will likely gradually increase rates .25% at a time to ease the impact, but business owners should start planning on taking advantage of low rates now. Term debt will be cheaper now and might influence purchase timing. You might also consider converting adjustable rate debt to term debt where possible to minimize the long term impact of the rate increases.
Chart your course: If equipment acquisitions & business expansion loans are necessary down the road, you might start working with an experienced commercial lender now on how to best position the timing of these purchases against rising rates. Fed policies and the global implication of rates can be a daunting thing for the average business owner to consume, so rely on a trusted team of experts to help you. At SLS we keep things uncomplicated and are happy to be a resource for you as you plan for success with rising rates. Let’s talk!