As the prospect of rising interest rates looms on the horizon, there has been much discussion about the potential impact to consumers and the housing market. While these are natural concerns, Boston Metro business owners must also be astute to changing financial environments, and be adaptable to new economic conditions. Here are some examples we found in the Boston Business Journal, along with insights of our own!
First, let’s recognize that the Federal Reserve has maintained very low interest rates for an extended period of time. The Fed’s policies are designed to sponsor economic growth, while keeping inflation in check – a delicate balancing act. Any uptick in short-term rates to member institutions will be moderate and gradual. In turn, the rates that banks and finance companies charge to customers will evolve in a similar manner.
Yet even a modest bump in the cost of borrowing can be disruptive, especially to new businesses, and to companies with narrow profit margins or fluctuating cash flow. A rise in rates increases the cost of doing business; a cost which could be passed to the consumer in some cases, but may not be feasible in others. Some reduction in profitability could be expected for businesses who rely on financing to maintain operations.
Any drop in profitability means that future financing could become difficult to obtain; this is where the risk begins to snowball for companies reliant on financing. Sound fiscal planning for both short-term and long-term borrowing needs should be a priority.
As interest rates increase, businesses may also be affected by changes in consumer spending. While the broader economy has been steadily improving, wage growth has been somewhat tepid. Consequently, many consumers have come to rely on borrowing to help augment their budget and lifestyle.
Any increase in the interest rates charged for mortgages, auto loans, personal loans, credit cards or student loans could leave consumers with less disposable income. Businesses who compete for the consumer’s discretionary income would be among the first affected.
Fortunately, the prospect of higher interest rates should not catch anyone by surprise. The Federal Reserve attempts to make interest rate changes somewhat predictable and well-publicized, so that businesses and consumers have a chance to adapt. You can learn more about monetary policy and how decisions are made by visiting FederalReserveEducation.org.
The business climate in the Boston Metro area offers excellent opportunities! When it comes to finding Boston Metro commercial real estate for your business purposes, there’s no substitute for an experienced commercial real estate broker who understands the market! Whether you are thinking of buying or leasing, we can help you find the ideal property. Please contact us today for expert guidance!