Last week, the Federal Reserve cut rates again -for the third time this year! Whether it’s good or bad on a macro level, I’ll leave that to debate. Instead, I’ll show you what it means and how you can benefit.

What does it mean?

Post 2008 financial crisis, the prime rate was stagnant for 7 years at 3.25%. From 2015–2018, if you borrowed cash, you experienced 9 rate hikes. That’s 2 whole percentage points! Let’s say you took a small business loan out for $425,000* for 10 years at the prime rate**, your payments would have increased over $400/month with no additional value created for your business.

If I lost you, here is what your payments look like in a table:

Impact of the interest rate change from 2015–2018.

That’s right! You would pay almost $50,000 more over the life of your loan as a side effect of monetary policy. Sigh.

In 2019, your luck changed. By the ordinance of astrological events or rather, the Fed’s roundhouse kick to a recession many await to manifest, Wednesday’s new prime rate published was 4.75% -higher than 2015, but better than last.

How you can benefit?

Go shopping…for better rates!

Lower rates introduce a competitive banking environment gifting consumers an advantage. How? Year-end is around the corner. Year-end quota needs to be fulfilled. Banks have year-end quota. Banks want your deposits. They want your business deposits so bad they may be willing to refinance your existing loan for a better rate.

Leverage your advantage. Shop around. Plan out what your next year's growth goals are and what your capital requirements to meet them will be.

And don’t stop shopping at the banks.

Look into alternative sources of capital.

I say that with bias as a platform operator who helps businesses raise money by issuing bonds*** to people instead of taking out a bank loan. Bias or not, I believe it. Money is out there. But what if you could also thread your growth into your capital raise? What if you could engage your customers by giving them the opportunity to invest in you and earn the financing profits that would have gone to the bank? What if you could build your brand and gain new customers in the process of raising capital for your business?

As local business owners, you are dealt so many challenges but Q4 2019 may have dealt you an unexpected leg up to set 2020 up for success.

Written by Gabrielle @ Team SMBX | gabrielle@thesmbx.com

*The average 2018 SBA (7a) loan size

**In reality, you pay prime + X.XX%, for simplicity I used prime solo

***The Small Business Bond is a new financial security private businesses can issue on the regulation crowdfunding (RegCF) portal SMBX.