I have been reading a lot about interest rates during the past few years. Interest rates have continued to stay lower and longer than I expected. The US Federal Reserve (Central Bank) has very clearly indicated and prepared the market for higher interest rates in 2014, 2015 and beyond.
Small business owners have been spending too much time trying to refinance into lower interest rate loans with minimal success. Why havent they been more successful?
- Banks have interest rate floors (i.e. rates might be 3%, but the banks lending floor is 5% - so you pay 5% on the loan)
- Small business financial position disqualifies them from receiving beneficial lower rates and will not have the a stronger financial position to refinance the loans until interest rates increase
- Small business owners believe they can solve a debt problem with more debt or a different kind of debt, but complain when the government does the same thing
By the time small businesses correct their financial position (another 2-3 years away) interest rates will be back to were they were at the time the original loan was granted.
Small business owners must get out of the mindset that more debt can solve a debt problem. Perhaps the US government should take this new appoach as well.
Focus on increasing revenues and margins to boost profitability. Use the after-tax profits to reduce debt. Position your small business to stand alone without a bank - make it the banks privilege to do business with you; instead of your businesses begging (that is how it feels!) for a loan.
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