Low Interest Rates And Looming Uncertainty: Borrowing During A Pandemic

You’ve probably heard the saying “the rudder doesn’t work unless the boat is moving.” Right now, when it comes to the economy, we won’t see movement unless we look to 2 percent inflation and that was the impetus behind the Federal Reserve’s recent policy shift.

The Fed is focused on spurring higher inflation, increasing economic activity and lowering unemployment while providing guidance that interest rates will remain in the low band in order to provide stability and certainty in the economy. It came at a time when the level of uncertainty around the strength of the US economy is at an all-time high from consumers, investors and the broader financial industry. Meager inflation can lead to falling prices and prompt consumers to put off buying things. Scant inflation leaves the Fed little room to cut rates further.  

The Fed’s plan of action will keep interest rates low for the foreseeable future, but how will that impact the way businesses evaluate cash flow and loans and what can banks do to alleviate the uncertainty that lies ahead for small businesses?

In the coming weeks and months, it is important for businesses to prioritize their strategy on how to navigate the unprecedented changes and challenges the country is expected to face and for financial institutions to establish the most optimal way to serve businesses. 

Over the course of the pandemic, we saw businesses shift, pivot and realign resources to meet the new needs of their communities and customer base.

PPP was a necessary and effective program to help business stay afloat in uncertain times. Now, businesses are looking ahead and incorporating lessons they learned along the way. We are seeing many review business plans, roll out new technologies and charter their path forward.  

While opportunities for growth and expansion do exist, there are some additional factors businesses need to consider when looking for financing.

A business must be able to weather difficult times, adapt and respond to changing conditions in order to survive moving forward and address the following questions:

  • How have your clients been impacted? Every business has a customer and if your client base has been impacted, it’s critical to understand how and ultimately what impact that has on your business It’s also important to consider if any of these impacts create opportunities for you. We’ve seen many businesses shift, pivot and realign resources to meet the new needs of their communities and customer base. 
  • How reliant are you on in-person business/brick and mortar? Do you have a tech/virtual alternative?
  • Between the potential of another wave of COVID and changed consumer demands, it’s important to consider multiple access points for your business 
  • If a new loan is approved, what do you plan to use the money for? Banks will be looking to understand how you plan to allocate the funds to ensure your investments will allow you to pay back the loan. While this has always been the case, banks will be more stringent given recent circumstances

Lower for longer interest rates can spur business expansion and growth, stabilize your debt load and better prepare businesses for what’s to come, but in order for businesses to continue to forge through an unsteady road ahead, they must factor the impact of the pandemic, today’s current environment and continued uncertainty as they shape plans for expansion and growth. After all, this is what we stress test for.

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