I suppose the headline of the article in the New York Times today “Interest Rates Have Nowhere to Go but Up” is technically obvious as they literally cannot go any lower. The change is that what has been nearly 30 years since 1981 of a consistent trend of downward moving interest rates we are now going to see the trend sustainably reverse.
It is expected that around a 100bps rise in rates over the next year, possibly more, will continue thereafter. This does not seem too large but small businesses need to take note.
Many small businesses use credit cards in their mix of finance, they will already have seen those rise significantly since the Credit CARD Act of 2009 came into effect in February with credit card companies raising rates ahead of this while they could. Business owners have already seen increasing costs or lack of equity in accessing homes / properties and 30 year mortgages are predicted to rise 50bps in coming months. So this is not a surprise.
But cheap loans have been for some time part of the landscape. How many businesses have assumed the cost of cheap finance into their business model. On a prime + 6% loan a 1% rise may not seem a lot, but that is more than a 10% increase in financing costs with more to come. It would be timely to revisit assumptions in business models to see how the coming years could impact your business.
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