Tips for small business in times of inflation and rising interest rates

Brandon Meredith 

The Federal Open Market Committee (FOMC) increased rates a quarter point from 0.25 percent to 0.5 percent in March — the first time since 2018 — and is expected to raise short-term rates more this year. Russia’s invasion of Ukraine is also causing tremendous human and economic hardship, worsening upward pressure on inflation in the U.S. With rates on the rise and growing costs of supplies and services, what does this mean for small-business owners?

Rates on the Rise

Interest rate hikes could fuel more costly borrowing, greater credit card costs and changes to consumer spending habits — all of which can impact a small-business owner’s bottom line.  To get prepared, here are a few tips for small- business owners in a rising-rate environment:

• Connect with a small-business banker. There’s no reason to navigate this changing environment alone. A small-business banker can help you understand your options based on your particular business and needs.

• Know your financial health. Because most small businesses are private, understating their solvency and long-term viability will take some examination. The good news is, there are some established ways to measure financial health. Understanding your balance sheet, income statement and cash flow is a great place to start.

• Pressure-check your business. What if rates continue to rise? Are you able to cover your credit and loan obligations if payments rise, too? Running through scenarios to ensure your business can weather any sort of change is always a good idea.

• Review any variable rate loans you may have. If you have any adjustable rate loans, they will go up based on the recent actions from the Fed. Consider shifting your adjustable-rate loan to a fixed-rate product so that any future Fed rate changes no longer impact the cost of your borrowing.

• Create a plan to pay down your high-interest debt. Credit cards are the first to rise when rates climb, so sit down and create a plan to tackle paying off this debt as soon as possible.

Inflation Hits 40-Year High

Small-business owners are also grappling with rising costs due to growing inflation. According to the latest NFIB survey, 22 percent of owners reported that inflation was their single most important business problem. While many owners are raising their prices to deal with inflation, here are a few other tips to help offset these challenges:

• Dust off your emergency plan. Now is a great time to run through “what if” scenarios and see if your business is ready. What if your supplies continue to rise? What if consumer spending changes and your business is impacted? What if your landlord, who is feeling the same pressures, raises your rent? It’ll be impossible to run through all potential scenarios but think through those that could have the largest impact to your business and make sure you’re prepared.

• Become leaner. Cutting staff, product offerings or hours is never easy, but temporarily this may be an option until the issues stemming from rising inflation can cool down a bit. Look at your overall business and see if there are any areas that can take a break and be revisited down the road.

• Access additional funds. Don’t be afraid to get help if needed. Connect with a small-business banker and see if taking out a loan to help with cash flow fluctuations while inflation pressures continue. Each small business’s situation is different and a banker will be able to help share what next steps may be wise.

With inflation and interest rate hikes, now is a great time to take stock of your business’s financial situation, seek support from a small-business banker and assess what other changes might make sense for your business during this time.

Brandon Meredith is the Wells Fargo Utah small-business leader.