With the Federal Reserve raising interest rates for the first times in a decade this week, many small businesses are asking our business loans team here in our New York office what this means for their business and their business loan.
Firstly, the good news is that the Chair of the Board of Governors of the Federal Reserve System Janet Yellen said “the underlying health of the U.S. economy I consider to be quite sound.” This was a very encouraging statement for all businesses and aligns with the view of management at United Capital Source.
In a poll conducted by United Capital Source in September 2015 with 60 small businesses across America, it was strongly held that interest rates would rise in the next 12 to 18 months.
It is important to note that rises in interest rates by the Federal Reserve do not impact the existing business loans taken out by clients of United Capital Source. Business loan agreements entered into by businesses are not affected by these interest rate changes. When a business secures a small business loan from United Capital Source, the repayments are made based on a predetermined loan amount paid back over a fixed period of time.
In contrast, home mortgages and borrowings on overdraft from banks are typically effected when the Federal Reserve alters interest rates. If you have a variable home loan mortgage interest rate, the monthly payments made can fluctuate depending on whether the bank or credit union your have the home loan with passes on the interest rate rise (or fall). For instance, on Wednesday 16 December, the Federal Reserve raised its key interest rate from a range of 0% to 0.25% to a range of 0.25% to 0.5%, it was widely anticipated the banks will pass these costs of borrowing onto the borrower.
If the bank or lending institution increases their interest rates to property owners with mortgages instead of absorbing the interest rate increase which would reduce their income from lending (which happens very infrequently), the home owner pays more interest on their mortgage.
Yet with small business loans, the repayment schedule is fixed at say 6 to 12 months and business owners know the payment amounts to be made. As an example, during the application of a loan against credit card sales our business loan team will take the time to discuss with you a repayment schedule. For certain types of businesses, a daily repayment schedule is preferred as there is high volume transactions. Where weekly repayments suit the business from a convenience perspective, we will accommodate your business loan accordingly.
In her address when announcing the interest rate rise, Janet Yellen noted that the manufacturing sector in particular would experience pressure. A rise in interest rate in the US can cause currency fluctuations and for domestic manufacturers based in the USA. United Capital Source provide business funding to manufacturers and shipping merchants who deal with importers and wholesalers.
In times of interest rate rises, United Capital Source work closely with our manufacturing, wholesaling and shipping merchants to ensure their business loan requirements are structured appropriately. Our loan managers regularly travel to locations around New York, Massachusetts, Pennsylvania and Ohio where large manufacturing, processing and distribution plants are located.
A distinguishing way in which United Capital Source operate is in understanding how our clients businesses run. We always feel it is important for lenders to walk through manufacturing plants, shipping yards and fabrication factories. Too often we hear of banks not taking the time to visit their clients premises. We are different. Our attitude is to firstly know and understand our clients business. To be helpful where we can on providing guidance on small business loans.
Being located close to the major US ports on the East Coast allows our loans team to either drive or fly in 1 hour to the major manufacturing hubs and shipping ports. Watch this video testimonial of John D. Hoffman, owner of Diesel Tech Inc., who speaks about obtaining a business loan with United Capital Source.
As the United States enters a period of rising interest rates, we will continue to be agile and flexible with business funding to ensure our clients feel confident and comfortable about their ability to repay their loans. With thousands of businesses funded across America, our optimism of the economy is strong and our focus is to ensure we continue to fund businesses with the most suitable business loans.