Navigating the Impact of Recent Fed Rate Changes on Business Funding

by Kieran Daly
August 10, 2023
Navigating the Impact of Recent Fed Rate Changes on Business Funding

In the dynamic world of business financing, even the smallest ripple can have far-reaching consequences. Recently, the Federal Reserve made adjustments to its interest rates. While these changes may not make a big splash in the headlines in the same way as a major economic event, they do hold significance for businesses seeking funding. 

In this blog, we want to break down the recent rate changes that the Federal Reserve has made and explore the implications that these changes have on accessing business findings. As always, Backd is here to help you navigate the world of business finance and support business owners in their growth, whether that’s through acquiring the knowledge that they need to succeed and battling rising interest rates or providing short-term working capital of up to $2 million. 

Understanding the Federal Reserve and Its Role

Before delving into the specifics of recent rate changes and trends, it is essential to grasp the role of the Federal Reserve. The Federal Reserve, often referred to as “the Fed”, is the central bank of the United States. It is responsible for implementing monetary policy to promote economic growth and stability. One of its tools is controlling interest rates, which have a direct impact on borrowing costs throughout the economy. 

What Are the Recent Changes That the Fed Has Made?

The Fed’s decisions on interest rates directly impact both short-term and long-term borrowing rates. In response to economic conditions, the Fed may raise rates to curb inflation or lower rates to stimulate economic activity. These changes ripple through various financial sectors, including the world of business funding. 

Back in June of this year, the Fed made the decision to pause interest rate increases and hold its key interest rate at around 5.25%. This had marked the first time in over a year that the interest rate was kept steady. Unfortunately in July, this hold on the interest rate was re-evaluated and the Fed resumed its rate hikes at a meeting of the Federal Open Market Committee. The new rate reflected an increase of one-quarter of a percentage to a rate of 5.5%, marking the highest level since early 2001.

How Do the Fed’s Changes Impact Business Loans?

  1. Cost of Borrowing: When the Fed raises rates, the cost of borrowing tends to increase. Businesses seeking loans might start to encounter higher interest rates than they had previously seen, affecting their overall borrowing costs. 

  2. Adjustable-Rate Loans: For businesses with adjustable-rate loans, the recent change might lead to higher monthly payments. These loans are tied to benchmark rates influenced by the Fed’s actions.

  3. Long-Term Loans: Long-term business loans, such as those for real estate or expansion projects, can be influenced by changes in long-term rates, Fed rate hikes could lead to higher interest payments over the duration of the loan. 

  4. Short-Term Funding: Businesses relying on short-term financing might experience increased costs. Lines of credit and short-term loans often have rates that respond quickly to Fed rate changes. 

With all funding options, it is crucial to ensure that you understand the cost of capital and how potential rate changes affect this cost. 

Opportunities Amidst Fed Changes

The changes that the Fed makes aren’t all doom and gloom. Fluctuations in rates provide an opportunity to re-evaluate your current footing before taking your business forward along the path. The opportunities can include:

  1. Reviewing Existing Loans: Business owners should review their existing loans to understand whether and how the recent rate changes might affect their payments. Refinancing could be an option if it leads to savings.

  2. Consider Fixed Rates: Fixed-rate loans offer stability in uncertain rate environments. Exploring fixed-rate options might provide predictability for your future loan payments.

  3. Alternative Funding: As traditional loan rates fluctuate, alternative financing options like merchant cash advances and B2B Buy Now Pay Later could be worth exploring. 

  4. Economic Outlook: Stay informed about economic forecasts. Anticipating potential rate changes can help businesses make informed decisions about their financing strategies.

How to Prepare For Future Fed Changes

While Heraclitus may not have been talking about Fed rate changes when he stated that “the only constant in life is change” it certainly doesn't make it any less applicable in this situation. Changes in rates are an inevitable hurdle that all business owners must face, but it's the preparation in anticipation of these changes that separates the weak from the strong. Businesses can prepare by: 

  1. Cash Flow Planning: With potential increases in borrowing costs, businesses should assess their cash flow projections to accommodate higher loan payments.

  2. Diversified Financing: Relying on a mix of funding sources can mitigate the impact of rate changes. Diversification reduces vulnerability to a single source of financing. 

  3. Building Strong Credit: While this one may seem more obvious, maintaining a strong credit profile gives businesses a better chance of securing favorable rates, even in changing economic conditions.

  4. Open Communication: If you have existing loans, open communication with lenders is crucial. They might offer insights or options to navigate rate changes effectively. 

While rate changes might seem daunting, they also encourage businesses to build financial resilience. By incorporating flexibility into financial planning, businesses can better weather the ups and downs of interest rate fluctuations. This might involve scenarios where higher borrowing costs are factored into budgets and contingency plans.

Analyzing Market Reactions

As previously mentioned, the changes that the Fed rate changes act as a ripple effect in the world of financing, meaning that the changes aren’t always immediate. Financial markets and lending institutions react to these shifts over time. As the central bank gradually adjusts rates, businesses might not experience immediate spikes in borrowing costs. Lenders typically consider multiple factors including economic conditions and inflation projections before passing on rate increases to borrowers. 

Navigate Changes with Backd: A Financial Partner You Can Trust

The recent changes in interest rates by the Federal Reserve serve as a living reminder that the financial landscape is ever-evolving. For businesses seeking funding, these changes can influence borrowing costs, cash flow projections, and financial planning. By staying informed about market trends, understanding the factors driving rate adjustments and proactively adapting financing strategies, businesses can position themselves to thrive in changing economic conditions. 

In these uncertain times, it’s crucial that businesses lean on a transparent funding partner, that’s where Backd steps in. We understand that a need for capital is a reality for so many business owners, it’s what we were founded on and what continues to drive us. 

While the rates have increased for most lenders, Backd has maintained rates so that we can keep the cost of capital affordable for you and your business. 

We know that traditional financing solutions don’t always help meet the needs of businesses across the country, especially during the current macroeconomic environment, and that’s why we continue to expand our offerings to help support your business.

From new innovations like B2B Buy Now, Pay Later to everyday reliable options like Working Capital Advances of up to $2,000,000 and Business Lines of Credit of up to $750,000, Backd is here to help you grow your business and strengthen its position in these uncertain times. Apply today to get the funding you need tomorrow. 

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