Rates are Dropping. How Will Savvy Businesses Respond?

October 18, 2024

The Fed dropped its benchmark interest rate by .5 percentage rates, which means anyone with a revolving line of credit is about to come into some money.

By lowering the cost to borrow, the central bank hopes businesses will do one of two economically stimulating things: borrow more to kick off or support growth-oriented activities, like hiring, or parlay lower monthly payments into greater buying power, boosting the sales of other companies.

However, what’s good for the economy is not necessarily good for your particular business. It’s important to apply your unique circumstances and strategic plans to any big money moves. Here are some factors to consider:

Rainy Day Fund: If you’re like many businesses, your emergency fund took a hit during the pandemic. Have you fully refunded? And if so, is the balance you shoot to maintain enough for current conditions? If the answer to either of these questions is no, you may want to consider applying the savings from lower monthly payments to leveling up your reserves.

Near-Term Expenses: Some see the Fed’s rate cut as a sign of a victory over inflation; others believe high prices will continue to challenge consumers and businesses alike, at least in the short term. What do your own projections show? It may be best to hold off on any new expenses until your own analysis of near-term costs indicates the coast is clear.

Business Credit Cards: If you’ve been holding off on a business credit card, now may be the time to give the no-collateral credit option another look. Credit cards make day-to-day purchasing much smoother, eliminating the need to withdraw cash from a line of credit. And, with the right one, you may benefit from cash back or similar rewards. An introductory rate could also be at play if you’re a new cardholder.

Home Equity: Especially for young businesses, personal assets of the partners can be go-to resource for start-up capital. Lower mortgage rates may stimulate homebuying activity, resulting in increased home values. This could make HELOCs an even more tenable option for business owners with increasing home equity.

Auto Loans: For several years, the auto market has been volatile to say the least. High prices and low inventory may have inspired you to hold off on any business vehicle purchases. Lower rates could make this a better time. Although, the Fed has said it may continue to reduce rates yet this year and into 2025, so holding off just a bit longer could pay dividends.

We’re here to help!

While the central bank’s rate cut opens up new financial opportunities for businesses, it’s best to approach these changes with a strategic mindset. Assess your unique financial situation and carefully weigh the potential benefits of borrowing against your specific goals before making any significant moves. If you’d like help developing projections or shopping for right-fit credit products, Bank Iowa commercial lenders are here to help.