Last week, the Federal Reserve’s Open Market Committee announced an increase in the federal funds rate to 5.25 percent marking the 17th consecutive increase in this benchmark interest rate. No doubt, many small business borrowers immediately felt the sting when commercial banks raised the prime rate to 8.25 percent.
Historically, about 75 percent of all small business loans under $1 million are prime based according to Dr. Econ at the Federal Reserve Board of San Francisco. If your small business utilizes bank loans, equipment leasing, factoring, P.O financing or any other type of asset based financing, there’s a good chance that it’s just become more expensive to run your small business.
Will the increases in these borrowing rates stop anytime soon? Some market analysts are suggesting that the Federal Reserve may take a pause in raising the federal funds rate. Nonetheless, it’s probably an excellent time to review your own company’s policies on credit, collections and payables and take steps to improve your cash flow.
Related Tags: business loans, factoring, small business, bank loans, prime rate, working capital, cash flow
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