Fixed, Long-Term Interest Rates Protects Against Rate Hikes

By Jean Wojtowicz, President, Cambridge Capital Management Corp. A Hoosier small-business owner recently told his banker that, "Interest rates are as low as they ever will be" in the foreseeable future, and he wanted to get a loan with a "friendly" rate. The Fed made that official recently when it indicated another quarter-percent rate hike will likely occur in December. Most pundits expect there to be three more rate hikes in 2019. Small-business owners are under pressure to act if they are considering the purchase of a major, fixed asset. People who own small businesses must make major decisions all the time. Decisions on marketing, launching a new product, whom to hire — or not — loom every day. Among the most significant decisions is whether and when to buy major fixed assets such as a building or heavy machinery. Fixed assets potentially will influence a company's success for years — even decades — in the future. Of course, they must be financed and paid for over a long time. Even though financing is a crucial "must have" for almost any business, it's a major commitment for an owner to add a monthly loan repayment to his or her budget. The repayment will be less of a burden if it a known amount that will not change over time. Locking in a low interest rate over a long repayment period is key. So, it is time for a small-business owner to go shopping for an affordable loan. A local bank is a good place to start. Banks, large and small alike, compete to make business loans, and loan repayments are a crucial component of a bank's income. But while large businesses have lots of options to arrange long-term fixed-rate financing, this can be much more difficult for smaller businesses. Those small customers may be most vulnerable and need to catch a break. And they also provide jobs and incomes for a large segment of their local populations. Bankers can access so-called "alternative" financing that can help a small business. For example, SBA 504 financing can offer loans at very low commercial rates and lock in that rate for 10 years, 20 years, even as long as 25 years! These are the types of programs many small-business owners miss. They are busy running their business and handling the responsibilities that come with it; sales, employee relations, meeting payroll, upkeep on property, locating and buying inventory. Any small-business owner will tell you that running a company is a full-time job, with lots of overtime. Small business owners rely on their banking relationships to search out affordable lending programs. And bankers, too, have a difficult job of keeping up-to-speed on financing options that will most help their clients. The message for people who own small businesses is: it's probably best to act now if you are adding a major, fixed asset. But do not be discouraged. You can get help. Assistance programs are available. Your banker should be able to enlighten you. And if one bank can't, there is another on the next corner. Interest rates will almost surely rise for the next few years. Locking in a lower rate now will save you, as a small-business owner, thousands of dollars over the life of your loan. And give you a consistent figure in your monthly budget. Jean Wojtowicz is president of Cambridge Capital Management Corp.