Should Small Businesses Worry About More Rate Hikes?

The US Federal reserve announced in December that there could be three interest rate hikes in 2017, and the first one is now expected to come this week. This is due to the impressive non-firm payroll numbers that came in last week. The US jobs data posted 235,000 jobs in February thereby beating the expectation of about 200,000 while the unemployment rate was down to 4.7% from 4.8% in the previous month.

As such, the US Federal Reserve is expected to increase interest rates for the first time in 2017 thus setting the process on course for three increments before year end. Initially, this might appear to have a negative impact on the lending market for small businesses. However, according to various economy analysts, small businesses and individual investors looking for funding need not worry about the impending interest rate hikes in the course of the year.

This is because the effect of high interest rates on lending rates is expected to be gradual, and thus businesses would most likely reap the benefits of the improving economy sooner than they would experience an adverse effect on financing costs. However, this fact does not mean that small businesses should jump in and take advantage of the gradual impact of increased interest rates. It is still very important to follow the right steps when getting a business loan including weighing up available options to match your business objectives.

Interest rates hikes in 2017 could be coming thick and fast compared to the last two years. It looks as though President Trump has finally had his way with the Federal Reserve committee. From a positive point of view, the committee is making these decisions based on the country’s economic strength and more rate hikes would imply a substantial improvement, at least theoretically. For instance, the current jobs numbers indicate that more than 235,000 people got employed in February compared to the estimate of 200,000.

This means that an extra 35,000 jobs were created thereby boosting the consumer market. In return, logic dictates that if the market continues this trend of outperforming expectations, consumer spending will continue to grow thereby prompting more rate hikes. As such, small businesses need not be frightened by the upcoming rate hikes as these could in retrospect trigger more sales thereby boosting their top lines.

Nonetheless, there are still a few who are concerned by Trump’s policies that are anchored on protecting American businesses and by extension the citizens. While sifting through the legal framework to ship out illegal immigrants might result in increased job opportunities for the natives, it might also have an adverse effect on local businesses.

For instance, real estate company Colliers International foresees the move by the government to strictly vet those travelling to America as a potentially limiting obstacle in revenue growth. Of course, if there are fewer people allowed to travel to the US, then the demand for residential property will decline. The same applies to other businesses, which rely on consumer demand for sustainable growth. “Reduced trade and immigration could materially slow long-term growth, depending upon the policies enacted and any retaliation from our trading partners,” Colliers noted in its December 2016 report on the state of the US markets under Trump Administration.

Conclusion

In summary, the US lending rate remains at low levels compared to historical averages. While it has rallied a bit in the last few months, it could take time before it reaches a level that would potentially concern small business investors looking for financing. Since the rate hikes will be done gradually, businesses and individuals are likely to enjoy the fruits of high interest rates before they can begin to feel the pinch of finance costs.

However, with some of Trump policies on immigration and trade proving to be prohibitive for long-term growth, it remains to be seen how long businesses continue to embrace the rate hikes without creating shock waves in various markets.