Interest Rate Increases for Business Loans in 2022: What to Know

How aggressive will the Fed be in hiking rates in 2022?

Raising interest rates by a small amount gives the Fed time to track how the economy evolves.

Federal Reserve Chairman Jerome Powell said that the Federal Reserve would raise rates more aggressively if needed, possibly six more rate hikes in 2022.

What does a rate change depend on?

The decision to raise or lower rates is not made lightly. The Fed’s rate moves can depend on a number of, factors, including:

Inflation refers to a general increase in prices of goods and services over time. When the general price level rises, money buys fewer goods and services, reducing purchasing power. Some downward movement is expected as the pandemic and supply chain bottlenecks recede. However, the prospect that inflation lingers for longer is also high, in part because of the situation in Ukraine and soaring oil prices. We have all felt inflation at the gas pump and at the grocery store recently!

Employment Data means information including the name of each employer and the name, ethnicity, gender, veteran status, zip code, and total hours worked and pay of each employee. Many workers are starting to ask for pay increases to account for rising living costs, while a historically tight labor market has led many firms to boost wages.

How can small business owners prepare for a higher rate?

Consider steps you can take  to help you protect your business finances and reach your goals in light of the current and future rate hikes. Work with your accountant or bookkeeper to help you choose the right path for your unique business.

1. Pay down debt: Business owners with fixed rate loans are less likely to experience an impact on payments from a Fed rate hike. As interest rates rise, monthly payments will increase for variable rate loans, so if you have a variable rate loan, ensure it has a long term so that as rates go up, you can mitigate the  increases to monthly payments. Prioritize paying down debt, especially a high-interest credit card balance. Consider consolidating that debt. Here are articles from the SmartBiz Small Business Blog offering more information on this strategy:

2. Boost your emergency savings: High inflation shouldn’t keep entrepreneurs from stashing a healthy amount of cash in case of emergencies or unplanned expenses. Learn more about savings strategies here:

3. Stay connected: Entrepreneurs facing a rate hike should live within their means, stay connected to their professional network, identify risk tolerance, and focus on long and short-term goals.

Final thoughts

Taking on additional funds for your business is a big decision. But the old adage, “it takes money to make money,” rings true for small businesses. Proceeds from the right small business loan can be used for working capital, debt refinance, marketing, hiring, and more.

PRO TIP: It’s a good idea to lock in an interest rate before additional hikes are put in place or to secure a variable rate loan with a long term. SmartBiz representatives are available to answer questions you may have about rates, fees, and other loan details. Spark growth and savings by choosing the right option to help you succeed.

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