Navigating a high interest rate environment

By now, you’ve probably gotten used to hearing news about interest rate hikes coming from the Federal Reserve. With the possibility of high interest rates remaining for the foreseeable future, all types of businesses and consumers have been forced to pivot their financial strategies and goals.

Despite the challenges posed by rising interest rates, your commitment to the success of your customers hasn’t wavered. Regardless of decisions made by the Fed, there are always alternative financing options for your business to consider in order to stay on track to meet your goals. Here are some options:

Navigating a high interest rate environment

  1. Move savings to high-yield accounts: While rising interest rates can cool down the economy, it has the opposite effect on savings accounts. Now may be the time to move excess cash your business is holding into a high-yield savings account like a certificate of deposit or money market that offers a high annual percentage yield (APY). Your yield will increase along with interest rates.
  2. Pay down debt: Putting your money in a high-yield savings account could be a smart move right now, but if your business has a significant amount of outstanding debt, you may want to consider paying off or reducing a portion of it to help minimize your interest expense. During times of uncertainty, partnering with trusted advisors on an appropriate capital structure and interest rate strategy is especially important.
  3. Pursue loans or lines of credit: To help build a reserve, preserve your capital, maintain inventory levels, or if your business is still chasing new opportunities to grow and expand, locking in to a short-term, fixed-rate loan could protect you from further rate hikes by the Fed. However, if you do commit to a longer-term fixed-rate loan, that lasts for several years, you could miss out on the benefits that would come if and when rates lower in the future. Another consideration that provides your business access to short-term funding with a bit more borrowing flexibility and rates typically lower than a credit card, is a line of credit. A line of credit offers the freedom to borrow what you need when you need it, with interest accruing on only the amount of funds you withdraw. In either option, seek advice from your banking partner for guidance on determining the best rates and structure for your loan needs.
  4. Shift your personal portfolio strategy to the bond market: Historical trends indicate that investing in bonds carries less of a downside than investing in stocks amid a volatile market. If you’re hoping to protect yourself – and ultimately your business - from a slowing economy, shifting more focus to the bond market might be a good play. However, bonds and interest rates have an inverse relationship - as interest rates or the cost of borrowing money rises, bond prices usually fall, so be sure to consult with an advisor before investing.
  5. Opportunities to work smarter: Look for opportunities to improve your operational efficiency by automating one or more internal processes. Take a closer look at the most time-consuming aspects of your business process, as well as tasks that require a lot of repetition. Consider, are you missing out on lead nurturing? Investing in task, workflow, and even marketing automation can allow for a greater focus on productive functions, reduce expenses, and support moving prospects and customers through your sales funnel.

Focus on the factors in your control

As it was discussed in the 2023 economic outlook episode of our Sharing Knowledge Series, perspective is important during times like this. Given the high interest rate environment, it’s important to stay focused on the goals that mean the most to your business. You might have to pivot strategies to get there, but you shouldn’t be deterred from pursuing new growth.

As always, staying optimistic and controlling the factors that you can are the best ways to stay on track to reach your business’s goals. Fortunately, navigating these challenges isn’t something you have to tackle alone.

Through times of prosperity and times of challenge, we are your business’s trusted financial partner.