Interest rate increase: What does it mean for your business?

The Federal Reserve (Fed) just announced another rate hike aimed at curtailing inflation and it is predicted more will follow. This increase will go into effect October 1, 2022. A rate increase might sound scary to a business owner, but knowledge is power. We’ve crunched the numbers to help you better understand how your variable rate loan might be affected.

Apply for an SBA loan

In short, variable rate loans, like an SBA loan, will generally see an increase in monthly payments as Fed rates rise. If you have a fixed rate bank term loan, your payments will not change.

The good news is that if you secure an SBA 7(a) loan or bank term loan through SmartBiz®, both have long repayment terms, making your monthly payments more manageable. Those long terms mean that if you have a variable rate SBA loan, and the Fed rate rises - even significantly - your payments generally won’t skyrocket.

This table shows how your monthly payment for a variable rate SBA loan might be impacted:

Fed Prime Rate Increase Monthly Payment Increase
100,000 SBA 7(a) loan from 5.50% to 6.25% $40.23
200,000 SBA 7(a) loan from 5.50% to 6.25% $80.47
300,000 SBA 7(a) loan from 5.50% to 6.25% $120.69

Even with variable rates in a rising rate environment, SBA loans are generally seen as a great option for business owners in need of funds. With the SBA guaranteeing the bulk of the loan, low rates, and a 10-year term, an SBA loan can help you reach your business goals. Start an application here** to see if you pre-qualify for an SBA loan from a bank in the SmartBiz network.

Bank term loans are also very popular due to their generally borrower-friendly terms. They typically require less documentation and may lead to funding more quickly. They do have higher interest rates from the outset, but those rates are fixed and won’t change due to Fed action. These loans are great for a business owner that values the ability to budget more precisely. Additionally, paying off a bank term loan responsibly helps to build business credit. Start an application here without impacting your credit score**.

Final thoughts

Despite the uncertain economy, entrepreneurs are feeling positive. According to a National Federation of Independent Business (NFIB) study, the Small Business Optimism Index increased 1.9 points to 91.8 in August, 2022. Additionally, small-business confidence improved. Now is an excellent time to examine your operations, understand your finances, and plan for the future.

As we navigate the current economy, the SmartBiz team will continue to bring you important news and resources to help your small business thrive.

*Interest rate on bank term loans depend on loan term and the applicant's credit and financial profile.

**We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

What you need to know: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.