How Interest Rates Affect Small Businesses

Small businesses are feeling the strain of higher interest rates after the Federal Reserve’s decision to raise rates on March 23, 2023. Over the past 12 months, the Fed has been gradually increasing interest rates, and the Wall Street Journal Prime Rate is now at 8%. This benchmark rate is significant, as many loans, including SBA small business loans, are tied to it. Let’s explore the effects of interest rate increases on small businesses and how Tenet Financial Group’s ROBS program can help. 

Why rates have Increased

The Federal Reserve has been gradually raising interest rates over the past 12 months to control rising inflation due to supply chain disruptions, rising commodity prices, and an increase in demand following the pandemic. The Consumer Price Index (CPI) rose 0.4% from February to March 2023 and has risen 6% over the past year, which is in line with expectations but still above the Fed’s target rate of 2%. In addition to the CPI, the Fed also considers other indicators such as wage growth and housing prices, which have been steadily increasing. However, these factors also contribute to inflationary pressures and potential economic overheating.

Bottomline: the Fed’s goal with interest rate increases has been to balance the economy and control inflation while still allowing for continued economic expansion.

Rate hikes are straining business finances

The recent increase in the Wall Street Journal Prime Rate (WSJP) prime rate from 3.25% at the beginning of 2022 to the current rate of 8% has put significant pressure on small businesses, particularly those that have variable rate loans.

For example, a $100,000 SBA loan with a 10-year amortization period at the beginning of 2022 – at 6% interest – would have had a monthly payment of $1,110. Today, that same loan would now have a monthly payment of $1,363, a $253 per month increase, at 10.75% interest rate.

This increase in loan payments can put a strain on small business finances and limit growth opportunities.

Fund your business interest-free with ROBS

Small businesses struggling to obtain financing in a high-interest rate environment may want to consider alternative funding sources, such as the Rollover for Business Startups (ROBS) program offered by Tenet Financial Group.

With ROBS, entrepreneurs can use their qualifying retirement funds to start or purchase a small business without incurring tax penalties or early withdrawal fees. This means that entrepreneurs can avoid high borrowing costs, retain greater control over their business, and avoid potential conflicts that can arise from sharing ownership by using equity – not debt – financing.

The ROBS program is an attractive option for small business owners who want to start or purchase a business but do not want to incur the high borrowing costs associated with traditional financing. By using retirement funds, entrepreneurs can obtain financing interest-free, which can help them grow their business without the added burden of high monthly loan payments.

Tenet Financial Group: Your Leader in ROBS and Funding Options

Tenet Financial Group is a leader in funding options for small businesses, offering a range of financing solutions to help entrepreneurs achieve their business goals. With our ROBS program, entrepreneurs can fund their business interest-free, allowing them to invest in their operations and growth without incurring high borrowing costs. Unlike traditional loans, the ROBS program enables entrepreneurs to invest their retirement funds directly into their small business without accruing debt. If you’re a small business impacted by rate hikes, you may want to consider an interest-free funding source like ROBS. You can actually use ROBS for an existing business, too, with the help of a qualified Third-Party Administrator like us.

Tenet Financial Group can guide you through the process of using a ROBS Funding plan for your new or existing business. Contact us to learn more about our interest-free financing options!