What you need to know about rising interest rates

August 3, 2017 | Commercial Real Estate Loans

The Federal Reserve has raised the prime rate twice this year and experts predict another increase is coming before the end of 2017 and project three more hikes in 2018. The prime rate is among the most widely used benchmarks in setting bank loan rates for small businesses. When the prime rate is raised, banks typically follow suit.

Small Business owners and rising rates
Small businesses owners considering financing to buy a business, new inventory or equipment or hire new employees will risk paying more in the long run if they postpone a decision to finance such capital needs.

If you’re considering buying your commercial property or major equipment, an SBA 504 loan is a good bet during periods of rising rates. The SBA 504 will help protect you against rising rates by keeping your overall cost of financing down. Due to the government’s participation in the loan, your overall rate will likely be lower than a conventional bank loan.

Banks can help their clients navigate rate increases
Bankers can build credibility and loyalty with their clients by helping small business clients benefit from lower interest rates and make good decisions for long-term financial security. One way they can assist entrepreneurs is by educating them about SBA loan options, including the SBA 504 loan which requires the bank to partner with a nonprofit lender in financing the purchase of a commercial/industrial buildings. Such loans feature a below-market, fixed interest rate for 20 years.

Learn more about SBA government-guaranteed loans as a way to offset rising rates
One of the best hedges against rising rates are lower-interest, government-guaranteed loans from the Small Business Administration (SBA). The SBA has a variety of loan options to meet the needs of entrepreneurs, including the 504 (commercial real estate), 7a, Community Advantage and Microloan programs. These types of financing are available via banks and nonprofit lenders such as CDC Small Business Finance. For more information, call 800.611.5170.

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