There are any number of economic factors that are difficult, if not impossible, to predict. Companies hate uncertainty, but pretty much every business starts in an uncertain business environment. It’s really just degrees of uncertainty. Indeed, there are no guarantees that interest rates will go up or that the fundamentals of the economy will stay strong, but it’s also not hard to see that there’s more risk than reward in waiting to borrow the funds to start your business.
If you’re thinking about starting a new business, you may want to do so sooner rather than later. Most financial institutions we’ve checked in with recently are predicting three interest rate hikes over the next 12 months. It’s hard enough getting a new business up and off the ground. Cheap credit is an essential resource for the majority of new businesses that either don’t have the necessary start-up capital or hit a bottleneck in their growth for want of investment funds.
Regardless, cheap credit is almost surely going to get a little less cheap. Much like prospective homeowners trying to frantically save for a down payment while their future borrowing costs go up, even the best-laid plans for the next year may come out in a wash when you start to payback your small business loan. Of course, if there’s simply no way to make your business plan viable sooner rather than later, certainly cheap credit is no guarantee of success, nor is moderately higher borrowing costs necessarily a back-breaker. More seasoned business owners and financially savvy folks in general know that we still have a ways to go before we reach the interest rates and inflationary concerns of a generation ago.
At the same time, it may make sense to get the financing for your business in the near future even if you don’t plan on using the funds to open your business for some number of months or even a year or more. Though not the conventional way to do it, it’s also unusual for there to be such a strong sense that interest rates will go up. There are no guarantees, but at the very least, you probably want to start talking to your bank now about what your options are, what the risks are to borrowing now vs. later, and what the terms of the ban will be and whether these terms make sense for your business plan and start-up schedule.
It’s also worth pointing out that the big reason so many people and financial institutions are predicting interest rate hikes is that years of strong corporate profits, deficit-financed tax reform, and wages that are finally on the rise, albeit modestly. In other words, the dollars should be out there for your company to earn—assuming it’s offering a marketable good or service. If you can lock in a low interest rate now, while making final preparations to officially launch your business, you can put your new company in a strong position from the start. Let’s get creative with this opportunity, as my own banker might say.