Interest rates increased again. What does it mean for your business?

The Federal Reserve (Fed) just announced another rate hike of 0.75% to a prime rate of 7%. It’s predicted more will follow as the government continues to use this strategy to try to curtail inflation.

Mitigating inflation is critical for the 33.2 million small businesses in America. The old adage is true: Small businesses are the backbone of the economy. Reducing inflation will typically help curtail costs and lower prices, two factors impacting business owners.

If you’re in need of outside funding, there may still be affordable options available. Here’s how the new interest rate might impact your payments.

Apply for an SBA loan

Variable rate loans

In short, variable rate loans, like an SBA loan, will generally see an increase in monthly payments as Fed rates rise. However, with longer repayment terms and lower rates, SBA-backed loans may offer excellent value when you need funding to grow your small business.

An SBA 7(a) loan through SmartBiz® has a 10-year term, helping to make your monthly payments more manageable. Those long terms mean that if 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 6.25% to 7% $40.94
200,000 SBA 7(a) loan from 6.25% to 7% $81.88
300,000 SBA 7(a) loan from 6.25% to 7% $122.84

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 may help you reach your business goals affordably.

SmartBiz became the top facilitator of SBA loans because our technology and team make the application process simple and easy to navigate. After you start your application, we’ll walk you through every step and answer your questions along the way. Start an application here** to see if you pre-qualify for an SBA loan from a bank in the SmartBiz network.

Fixed rate loans

You won’t face a rising rate with a bank term loan facilitated by SmartBiz. These fixed-rate loans offer business owners the opportunity to secure cash flow more quickly while locking in a favorable fixed rate.

Bank term loans are 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 often great for a business owner that values the ability to budget more precisely. Additionally, paying off a bank term loan responsibly typically helps to build business credit. See if you pre-qualify here without impacting your credit score**.

Lines of credit

SmartBiz also facilitates a variable rate line of credit with 12 months of interest-only payments and no draw fees. Available amounts range from $25,000 to $150,000. Repayment begins after you make a withdrawal from your line of credit, and interest would only apply to the amount you borrow. Once you repay a borrowed amount, the funds are immediately available to you again.

Although the rate is variable, lines of credit have advantages for business owners. The use of funds is flexible, you won’t be responsible for monthly payments, and interest isn’t charged on the unused money in the account. Learn more about custom financing solutions from SmartBiz.

Final thoughts

There is a lot of economic news out there, but it isn’t all bleak. There’s good news about the future of the American economy. In October, a new study reported that despite economic challenges, more than 6 in 10 small business owners are optimistic about their business prospects for the next six months. As we head toward 2023, the SmartBiz team is available to help you secure the funding you need - and can afford - and, as always, we 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.