The Federal Reserve lowered interest rates by a quarter of a percentage point in September. This is the second time they've done so since this past July. Federal Reserve officials made the decision to help stabilize the economy. The move is likely to have positive effects for your business.
"Overall, lower interest rates tend to be good for business," says Patrick Cox, CEO of Tax Defense Partners, a tax negotiation and mediation company. "In the short term, lower interest rates bolster the economy, and that makes everything from marketing to financing large capital expenditures easier."
As a result of lower interest rates, Cox has seen an uptick in his customers qualifying for low-interest personal loans to satisfy tax debts.
"The lower interest rates mean our customers have more options to deal with their liabilities," says Cox. "We've also seen people in more severe financial distress start to dig themselves out from credit card debt, freeing up more money to take care of their tax problems."
The Potential Benefits of Interest Rate Cuts
Since interest rates have been at a low for the last several years, some companies have found the landscape hospitable to growth. Such is the case with Mike Bundrant, CEO of iNLP Center, a neuro-linguistic and life coach training company.
"Since most small business loans tend to have variable interest rates, any decrease in the Federal funds rate means lower debt service costs on outstanding loans," says Bundrant. "That means we gain added bottom-line flexibility to keep our cash flow strong."
During times of low interest rates, Bundrant finds that his business benefits from the resulting increased capital.
"We can use the savings to build a cash reserve to help us get through a downturn if one materializes, or we can use it to bolster marketing operations as a hedge against declining sales," he says. "Either way, it means more money within our business."
While lower interest rates are in effect, it might be a good idea for your company to take advantage. Here are tips for doing so.
1. Borrow to expand your business.
"Now is the time to tackle shovel-ready projects that just need an infusion of capital," says Robertas Boravskis, co-founder of GPSWOX, a GPS tracking software company. "It's a good time to borrow money to make such projects a reality."
Keep in mind that a lower interest rate won't change the realities of everyday operations. Necessary expenditures will still be necessary, and good business practices are still required.
-Mike Bundrant, CEO, iNLP Center
Daniel Ameduri, co-founder of FutureMoneyTrends and author of Don't Save for Retirement: A Millennials Guide to Financial Freedom, agrees.
"If you can borrow money, consider doing it and investing in anything that can lead to cash flow," says Ameduri. "However, only borrow if you can find an investment or asset to pay the interest, plus put money in your pocket."
2. Invest in upgrades.
"With careful planning, almost any business can leverage lower interest rates to fuel growth," says Cox. "It's an excellent time to consider technology upgrades, because the total cost of items like equipment and software purchases won't be this low forever."
3. Refinance existing loans.
"For thriving companies, now is a good opportunity to refinance existing loans to lock in fixed rates for the long term," says Bundrant.
"You might want to go with a fixed-rate loan," agrees Boravskis. "Give some thought to the possibility that there's a good chance that the Fed may raise rates to staggering levels again in five to 10 years. Therefore, locking in a super-low interest rate now is a good idea."
4. Focus on long-term goals.
"Keep in mind that a lower interest rate won't change the realities of everyday operations," says Bundrant. "Necessary expenditures will still be necessary, and good business practices are still required.
"Keep your eye on your business's long-term strategy and goals," he continues, "and try not to get too wrapped up in what's going on with interest rates."
5. Plan ahead.
"Times like this when interest rates are down are exactly when businesses should be future-proofing themselves against slow economic growth," says Jesse Wood, CEO of eFileCabinet, which produces document management software.
"It's a good idea to invest in a way that will lead to long-term growth long after the financial landscape changes," he says.
Read more articles on financing.
Photo: Getty Images