Everyone likes falling interest rates, and Federal Reserve Chairman Alan Greenspan obliged us with no fewer than two cuts in short-term interest rates in January, a half-point drop in March and another half point in April. So what's in it for entrepreneurs?
The answer depends on the type of business you run and how deeply your company is leveraged. When the price of money goes down, customers start spending, especially on high-ticket items. So a company selling exotic hardwood flooring might get a few more calls, but a private mailbox service will probably see business proceed as usual.
Whenever the Fed acts, you need to move fast if you want to take advantage of that fleeting interest-rate high. "You want to target customers for whom a drop in interest rates will make a big difference," says Robert Brockhaus, director of the Center for Entrepreneurial Studies at Saint Louis University in St. Louis, Missouri.
Interest rate cuts don't have to be huge to make an impact. January's total reduction amounted to just 1 percent, but Brian Flynn, CEO of New York City-based Annotate.net, says it sparked renewed interest from venture capitalists. "It's an emotional thing," Flynn says. While not likely to spur a wave of VC investment, the cuts could revive investors' interest on a case-by-case basis.
If the rate cuts fail to squelch doomsday predictions of recession, entrepreneurs may see their numbers growing. Economic slowdowns have already given us laid-off employees, and, in past recessions, many idled hands have turned to entrepreneurship to survive. Says Brockhaus, "There's more of a push than a pull to become an entrepreneur."