Interest rates have slowly risen during 2018 and many experts anticipate the Federal Reserve will further increase rates in 2019. The good news is the U.S. economy seems to be growing and strong. The not-so-good news is that higher interest rates get passed along to everyone who borrows.
“The cost of money is the wild card for 2019,” states Sam Patterson, CEO of Springtree Group, a Dallas-based insurance industry mergers and acquisitions consultancy firm. “Every time the Fed moves interest rates up, the market gets quiet for a couple of weeks trying to figure things out. Agencies need to determine if they can afford planned growth initiatives like acquisitions, hiring, marketing or infrastructure improvements.”
For growing agencies or any small business that depends on lending for cashflow, the cost of borrowing will go up if interest rates increase. This will affect all financial products from mortgages to business loans to credit cards and personal loans. When interest rates rise, banks and other lenders profit more from their loans. Because of this profitability, more lending opportunities are likely to become available. So small businesses, including agencies, may enjoy greater access to funding options. However, those loans will come at a higher price to you, the borrower.
If your business depends on credit to operate, your interest costs may increase. What can you do now to prepare for a possible rate hike?
1. Plan Ahead
Think about what you want to accomplish over the next few years. How much money will it cost? Will you need to borrow? Put a plan together, prioritize, and know you could be paying more for loans to fund your growth initiatives. Check out our guide to the current lending landscape for insurance agencies.
2. Increase Your Revenue
“The best way to combat rising costs is to implement a growth plan that will increase income,” advises Rich Manners, AgileCap director of sales. “We work with customers every day to fund mergers and acquisitions. They are very efficient ways for agencies to rapidly increase their revenues.” Learn more about the results of organic growth versus acquisition.
3. Apply Now in Anticipation of Rate Hikes
If you were planning to apply for a business loan to ensure your fiscal flexibility, sooner is better than later. By applying before interest rates rise again, you will have the time and freedom to consider your options. It’s better to be prepared in advance than to rush at the last minute into a deal you can’t afford.
4. Manage Cash Flow in Anticipation of Future Needs
Insurance commissions are cyclical with varying rates and payment schedules. If you typically borrow to get through months with lower revenues, this tactic may become too expensive. Higher interest rates mean your payments will be higher on every loan, whether short- or long-term. It’s time to be more strategic in your use of credit.
5. Tighten and Save
Cut costs wherever possible and tuck your excess earnings into savings. Since interest rates on savings accounts also rise when the Fed increases rates, your saved money will grow. Especially when interest rates are high, saving will strengthen your agency’s balance sheet and position you for smarter growth.
6. Know Your Adjustable Rate Products
You may already have adjustable rate loans and credit cards in your financial mix. Every time the Fed’s benchmark rate increases, your rates on floating or adjustable rate loans increase with it. Since interest rates are projected to rise in the foreseeable future, identify your adjustable rate credit sources and eliminate surprises.
You don’t want possible interest rate hikes to slow your agency’s momentum.
If you’re ready to talk with someone about:
- your existing debt portfolio
- your plans for growth and change
- financing or refinancing
then schedule a complimentary consultation with one of our Lending Advisors.
Our experienced staff will ask strategic business questions to help us understand your goals, objectives and financials. We’ll design the custom lending package that’s best for your future success regardless of rates going up, down or staying put.
Schedule a complimentary consultation with one of our Lending Advisors by calling us or using the form below.