The era of record-low interest rates may be coming to a close, pending anticipated hikes this year by a Federal Reserve worried about inflation. But the impact on entrepreneurs is likely to be manageable. "Moderate increases in inflation and interest rates happen when the business environment and consumer buying is better," says Robin Wantland, national director of business banking at Compass Bank in Dallas. That's good news as long as the rate climb stays within limits. "Anything north of 7 to 8 percent would be a warning signal," Wantland says.
Rates have held so long that businesses may be caught short adapting strategies to the changing economy. But with the Federal Reserve proceeding slowly, there's time to get in gear. The process is already underway for members of the Alliance of Chief Executives, a Walnut Creek, California, organization of people who run businesses in the San Francisco Bay Area. Bart Penfold, president of the Alliance, says members are reviving plans to expand product lines and increase investment. Companies are also boosting sales and marketing staff to take advantage of rising consumer spending.
Companies with heavy debt might be more concerned with the rising cost of money. Locking in rates is an option for businesses with existing loans. For those anticipating capital needs in the near future, it may be time for the fixed-rate value of a home equity loan. "It's also still a pretty opportune time to refinance," Wantland says.
Mike Rippey, 49, owner and CEO of 1-800-Radiator in Benicia, California, says he's worried that higher interest rates will raise the cost of raw materials. The company sells car radiators to repair shops and amateur mechanics over the phone. Annual sales reached $48.5 million last year. "Radiators are made of aluminum and copper, commodities that tend to respond to interest rates," Rippey says. That inflationary pressure will force him to constantly revise prices to keep pace with costs, a huge burden considering the 2,000 radiator types the company stocks.
Worse yet might be the impact on payroll. "Inflation creates expectations for wage increases," Rippey says. Clearly, business owners won't be the only ones keeping an eye on the numbers . . . and the Federal Reserve.