When Fidelity Bank president and CEO Chris Ferris talks to his commercial clients about the state of the uncertain economy, their first question is often, “When will the economy turn around?” The second question is, “What can we do until we get to that point?”
“This is definitely an time in our economy with the one-two punch of inflation and rapid interest rate increases, so we have had many conversations with our clients about their,” Ferris said. “While we don’t have a crystal ball to what our economy will look like six to 12 months from now because there is so much uncertainty, we are optimism that we will have a path forward, and there are action steps business owners can take in the meantime.”
Ferris said business owners should evaluate existing debts and look at refinancing or reorganizing any variable rate loans; the Federal Reserve is forecasting several more interest rate hikes to combat inflation. On June 15, the Fed raised its benchmark interest rates three-quarters of a percentage point to a range of 1.5%-1.75% in its most aggressive hike since 1994.
“The forecasts are that interest rates will go higher before the end of the year, so our commercial loan activity team has had proactive conversations with our clients about analyzing their existing debts and seeing if there are opportunities to save money in the short and long term ,” Ferris said.
While 83% of small business owners are concerned about an economic recession, 80% are confident they can withstand one, according to 550 small business owners polled by Kabbage in the financial technology company’s “Small Business Recovery Report.” Resilience in the aftermath of the COVID-19 pandemic was the top reason for confidence, followed by companies’ abilities to sustain branding and marketing, improve upon ecommerce and adjust to inflation. Among those that applied for credit over the past year or are planning to apply within the next six months, 46% said they will use the additional capital to cover inflation costs.
With rising operating costs, small business owners who want to increase their working capital can look into SBA 7(a) loans, said Ferris. There are qualifications to meet, but these low-interest loans, for up to $5 million, help businesses obtain financing for general business purposes, such as working capital; buying equipment; buying or renovating buildings; and refinancing debt.
“The SBA offers products that help businesses continue to invest, so it’s important to visit with your banking partner and look into resources that can help build cash flow,” Ferris said.
Businesses that have conserved capital may have growth opportunities while other companies are pulling back, said Guy Williams, president and CEO of Gulf Coast Bank & Trust Company.
“We had a client in Slidell who sold his business because he said it was time for him to retire and move on from this economy,” Williams said. “If business owners within your industry are looking to sell for cheap and get out, and there are opportunities for expansion and asset growth that make financial sense, then explore those. Just don’t go making investments that are too expansive, far-fetched or involve speculative risks.”
If there are opportunities, businesses should look at diversifying their client base and increasing revenue streams within their markets, said Williams. But they also should focus on their main products and services and realize what has made their business successful.
“Economic cycles come and go, and yes, we are in a tough time, but this won’t last forever,” Williams said. “Businesses need to not lose sight of what they are good at and who got them to this point – their valuable core customers and loyal employees. Continue to build those strong relationships, invest in your existing customers and employees and do what you can meet their needs during these tough times.”