Question: Now that the Federal Reserve is cutting interest rates to boost the economy, how can I take advantage of this trend to lower my cost of capital?
Answer: While the Fed's recent rate cuts have been a boon to business owners and consumers alike, this is not the time to go on a borrowing binge to build your business. Despite the liquidity crunch caused by the subprime mortgage meltdown, the Fed must balance its desire to stimulate the slowing U.S. economy with the risk of igniting inflation and choking consumer demand.
That said, the Fed's recent rate cuts have created a number of opportunities for startup entrepreneurs looking to reduce their monthly interest payments. According to Robert Sloop, CEO of Kaizen Capital Advisors LLC and an interim CFO who specializes in securing financing for restaurants, you may want to consider paying off any high-interest credit card debt you took on to start your business with a home-equity credit line that's typically tied to the lower Fed funds rate. Another idea, Sloop says, is to apply for a credit card with a low introductory rate and use that card to consolidate your outstanding credit card debt. Just remember: What comes down can quickly go back up again. Resist the temptation to pile on more debt--either on your credit cards or home equity line--just because rates are currently low.Rosalind Resnick is founder and CEO of Axxess Business Consulting, a New York City consulting firm that advises startups and small businesses. You can reach her at firstname.lastname@example.org or abcbizhelp.com.