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What the Fed Rate Hike Means for Small Businesses

The Federal Reserve voted to again raise interest rates. PNC shares what it could mean for your small business.

The Federal Reserve has again voted to raise interest rates, a move most economists saw coming. “Our spring 2018 Economic Outlook Survey found record optimism from small and mid-sized business owners nationwide about the national economy, their local economies and their own companies,” said PNC Chief Economist Gus Faucher. “These companies reported expectations that U.S. economic growth will accelerate in 2018 and the labor market will tighten.” Under these circumstances, it’s common for the Federal Reserve to increase interest rates. “To prevent the economy from overheating, the Fed will continue to gradually raise the federal funds rate throughout 2018,” added Faucher.

Three people in a business meeting

Here’s what higher interest rates could mean for your small business:

  • It’s time to review what you’re borrowing and how you’re financing your business. Higher interest rates mean it’s more expensive to borrow money. The cost of small business loans and lines of credit may rise. Be proactive—consider refinancing any variable interest loan before that happens. A trusted financial advisor can help you review the long-term picture. 
  • It’s not all bad. Rising interest rates offer you a good reason to assess the big financial picture for your business. Though they tend to get a bad rap, higher interest rates can have benefits, too. If you play your cards right, your savings could work harder for you when rates are up. Higher relative rates also could mean a stronger U.S. dollar, which could work in your favor if you import foreign goods.
  • It’s not only about you. Your suppliers and customers also likely will be affected. When interest rates go up, savers may reap slightly better rewards.  At the same time, customers may feel a pinch if the rates on their own loans increase, leaving them with a little less spendable income. This could slow down business for you. Have frank conversations with your customers and suppliers about their concerns.
  • Keep calm, and take care of business. Don’t worry too much about the latest headline. Try to focus on doing what’s best for your business over the long term.

 

Learn more about small business banking with PNC »

 

Gus Faucher
Gus Faucher is PNC’s chief economist

Did you know?
The most common industry for small businesses is services, which accounts for nearly half of small firms.[1]


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