Following the Federal Reserve’s decision to raise rates by.75 percentage points as a means of containing inflation, banks have raised their prime lending rates to the highest level since right before the financial crisis of 2008, according to a report by CNBC.
Small firms, who may find it harder to pay these increased loan rates while dealing with higher labor, commodities, and transportation costs, may find this move to be more challenging. Although there is still a demand for loans, we are dangerously near to the point where people will begin to doubt.
Chris Hurn, founder and CEO of Fountainhead, which specializes in small business lending, said in the report. “We’re not there yet. But we’re closer.” In addition, this likely won’t be the last time the Feds raise rates.
Small company loans might increase to 9% or more if the Fed raises rates two more times. The unemployment rate is lower now than it was in 2008, and ledger balances and company balance sheets are stronger.
Hurn remarked, “We’re simply running into a weakening economy. Small firms may benefit if these efforts are successful in reducing inflation. However, since these rates will affect both cash flow and monthly loan payments, it is unclear how quickly this will happen. People will continue to borrow, but it is unclear if they will be able to do so at reasonable interest rates or even if they will be successful in getting financing from conventional sources, according to Hurn.