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Five Steps to Consider in a Rising Interest Rate Environment

Today the Federal Reserve raised interest rates again.

Over the last several years we have lived through a period of extraordinarily low-interest rates. And for some business owners, they assume this is the norm.

I am often asked, “what do I think will happen with interest rates going forward?” And until recently I always answered with a joke “If I knew for sure, I would be on the beach in the Bahamas drinking martinis !!!”

But recently my answer is different. I think interest rates are going to keep going up (as they have the last few months) and this is a smart time to lock up long term fixed interest rates where possible.

We are in a period of economic growth, and tremendous uncertainty. There are new sheriffs in town in Washington. And as I wrote about in my last column, we have seen business lending by banks slowing down.

Here are five steps business owners should consider.

  1. If you foresee real estate purchases over the next year or two, you might wish to accelerate your search. Interest rates could be much higher in a year, and make the cash flow prohibitive.
  2. Look at the SBA 504 program for equipment and real estate purchases or refinances. This program offers exceptionally long fixed interest rates with ten percent down.
  3. Review your current loans and be sure you understand what happens at different trigger points in the agreement. If you have an arm, what happens at the next bump?
  4. If you own real estate without any debt it on now, considering getting a loan against it with fixed rates and use the cash to pay off other variable debt or invest in your business.
  5. If your line of credit is close to maxed out, consider terming some of the balance out with fixed rates.

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