What Entrepreneurs Need to Know About the Fed's Rate Rise

How the financial web will help small business owners ahead of the increase.

learn more about Ryan Himmel

By Ryan Himmel


Opinions expressed by Entrepreneur contributors are their own.

Citing strong economic progress, the Federal Reserve's decision to raise rates for the second time since the financial crisis of 2008 has business owners asking when they'll see banks tack the increase onto capital costs.

Announcing the rise at a press conference, Fed Chair Janet L. Yellen told reporters, "I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment."

Related: Online Small-Business Lending Is Set to Bounce Back

According to the Fed, the increase of the federal funds rate might not be the last in the next twelve months. In a statement, the Fed said they expect economic conditions "will evolve in a manner that will warrant only gradual increases in the federal funds rate," further supporting market expectations that rates will likely continue to rise over the next year.

Although only time will tell when the cost of capital will be bumped by lenders, it's important for business owners to remain alert if their access to capital is changing -- especially if the Fed predicts a brightening economic outlook. As the economy improves, interest rates are only going to increase.

Securing finance is traditionally easy to get when you don't need it and when you need it, it's hard to get, or it will likely cost you more. Low-risk businesses are usually is a better position to access capital at a lower rate. Constant cashflow vigilance is key here. By lining up capital flows in times where cash flow is good, you'll save yourself from slipping into dire cash flow straits.

Related: You Want to Start a Business -- How Should You Finance It?

While any further interest rate increases will be done so gradually, entrepreneurs may be affected when trying to finance their businesses or even expand. This is an opportunity for banks to step up to accelerate small business lending. And in the future, we'll see this trend strengthen through the financial web, a network of organizations sharing financial data.

When this data flows between accounting and banking systems, this is when we start to see productivity and growth unlocked in the small business market, which is traditionally a high-risk, low-yielding sector for financial institutions to service.

Worldwide, many financial institutions share this vision, with banks and large enterprises connecting directly to technology platforms in order to offer financial services to small businesses in a way that is both cost effective and scalable. Through this partnership, banks are starting to automatically flag business owners when cash flow looks tight and offer financing to tide them over.

With a full set of historical audited numbers at the fingertips of bankers, and an accounting professional there to review the numbers each day, lending to a small business becomes less of a risk.

Related: Can Main Street Businesses Thrive in the Trump Era?

But until the financial web becomes more readily available, how do you know when it's the right time to take money and at what price? The short answer is to consult your advisor. They'll be able to give you the best advice as to when you should take money or not. A good rule to follow is the best opportunity to access capital is when you're confident you'll be able to achieve a return above costs of debt. If there's less confidence in that investment return, more extensive financial modeling may be needed in order to determine risk versus reward. The fewer risks a business owner takes, the better.

By keeping an eye on your cash flow and discussing lending with your advisor, even when business is good, you'll be able to ease those rate rise worries.

Ryan Himmel

Head of Financial Partnerships, Xero Americas

Ryan Himmel is a CPA and financial technology executive who has dedicated over a decade of his work toward providing solutions to help accountants and small-business owners better run their firms. Himmel currently leads financial partnerships in the Americas for Xero.

Related Topics

Editor's Pick

This 61-Year-Old Grandma Who Made $35,000 in the Medical Field Now Earns 7 Figures in Retirement
A 'Quiet Promotion' Will Cost You a Lot — Use This Expert's 4-Step Strategy to Avoid It
3 Red Flags on Your LinkedIn Profile That Scare Clients Away
'Everyone Is Freaking Out.' What's Going On With Silicon Valley Bank? Federal Government Takes Control.

How to Detect a Liar in Seconds Using Nonverbal Communication

There are many ways to understand if someone is not honest with you. The following signs do not even require words and are all nonverbal queues.


Working Remote? These Are the Biggest Dos and Don'ts of Video Conferencing

As more and more businesses go remote, these are ways to be more effective and efficient on conference calls.

Growing a Business

The Best Way to Run a Business Meeting

All too often, meetings run longer than they should and fail to keep attendees engaged. Here's how to run a meeting the right way.

Business Ideas

55 Small Business Ideas To Start Right Now

To start one of these home-based businesses, you don't need a lot of funding -- just energy, passion and the drive to succeed.

Business News

Amtrak Introduces 'Night Owl' Prices With Some Routes As Low As $5

The new discounts apply to some rides between Washington D.C. and New York City.

Business Solutions

This Highly Rated App Could Help Business Owners Stay Organized

Get your business in order with this personal organizer app on sale for $60.