Growing Your Business in a Rising Rate Environment

In June 2018, Federal Reserve Chairman Jerome Powell spoke at a news conference. Mr. Powell said that the economy had strengthened significantly since the 2008 financial crisis. Mr. Powell signals that rate could go up twice again during the remainder of 2018 and again in 2019. The Wall Street Journal prime rate currently sits at 5%, up 0.75% from a year ago.

It is certainly good news that our economy is strong but what does that mean for businesses that need to borrow to grow? Here is what commercial lenders recommend: be proactive and start talking to lenders now.

Applying for a business loan is not any different from applying for a mortgage. You fill out an application, provide the necessary documents, and wait for a call from the mortgage company. You anxiously wait for that call and when you finally hear from the mortgage company, 9 times out of 10, it isn’t a go right from the beginning. The mortgage company has done the due diligence on you and is now requiring you to clean up your record before giving you the green light. If that isn’t stressful enough, you now are concerned that your dream house could be off the market in the time that it takes you to “get everything nice and pretty”. Does this scenario sound familiar to you?

Commercial lenders use a similar approach when evaluating companies applying for loans. You can be certain that one of the companies is likely your competitor. How do you position yourself at the front of the pack to get the lenders’ attention? The key is to understand what kind of due diligence they perform to uncover the weaknesses in your businesses. Wouldn’t you, as the business owner or CFO of the company, like to know those weaknesses and proactively correct them before going to the lenders? In addition, lenders use the 5 C’s approach to size you up against other companies vying for capital to grow their businesses. They use them to evaluate your ability to service the loan and the strength of your collaterals, among other things.

Time is money. That rings even more true when growing your business in a rising rate environment.

  1. Do you have a growth plan in the next few years that requires capital to bring it to fruition?
  2. Do you want to attract lenders’ attention and obtain the most favorable terms?
  3. Do you want to be your industry’s leader?

We are passionate about helping businesses grow. At CFO Connections, we help business owners become less anxious about time and money. We help businesses rise to the top of their game by improving cash flows, and building and protecting business value. If you answer YES to any of these questions, please contact us and we will stop by for a complimentary visit!

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