![]() ![]() "This is how we have to tame inflation and if it hasn't already been painful, it will be more painful." "It's having the effect the Fed wants but at the expense of the economy and expenses of these smaller companies that are not as well capitalized," he said. There is now more focus on cutting costs amid changing expectations for revenue and profit growth. "Talking to small business owners looking for financing, it's starting to slow things down," Hurn said. Margins already have been hit as a result of the rising costs of monthly payments, and that means more business owners will cut back on investments back into the business and expansion plans. The problem isn't the rate increase anymore, the biggest challenge will be staying at these levels for quite some time." Cutting costs and using debt capital conservatively "This recession won't be as deep as 2008 but we also won't see a V-shaped recovery. "We are in for a long haul problem," Arora said. And if rates don't come down until late 2023 or 2024, that means "a full year of high payments and low growth, and even if inflation is coming down, not coming down at a pace to offset other costs," he added.Īs economist and former Treasury Secretary Larry Summers recently noted, the economy may be moving into the first recession in the past four decades to feature higher interest rates and inflation. "It will take a lot of time and create more pain for everyone," he said. Getting inflation down from 9% to 7% was likely to be the quicker change than getting inflation from 7% to 4% or 3%, Arora said. This problem will be exacerbated by the fact that as the economy slows the need to borrow will increase for business owners facing declining sales, and unlikely to see additional support from the Fed or federal government. The latest Fed projection for the terminal rate released on Wednesday rose to 5.1%. Survey respondents said a recession, which 61% of them expect next year, would not alter that "higher for longer" view. The latest CNBC Fed Survey shows the market forecasting a peak Fed rate around 5% in March 2023 and the rate being held there for nine months. Even in slowing rate hikes and potentially stopping rate hikes as soon as early next year, there is no indication the Fed will move to cut rates, even if the economy enters a recession. ![]() That's because beyond the psychological threshold of the 10% interest level being breached, the expectation is that the Fed will keep rates elevated for an extended period of time. "The pain is already in, and there will be more," Arora said. A majority (62%) of owners told NFIB they are not interested in applying for a loan. Almost a quarter of small business owners said they are paying a higher rate on their most recent loan, and the highest since 2008. A few people over the past few weeks have said to me, 'Wow, it will be double digits.'" More entrepreneurs cite financing as top problemĪ monthly NFIB survey of business owners released earlier this week found that the percentage of entrepreneurs who reported financing as their top business problem reached its highest reading since December 2018 - the last time the Fed was raising rates. "Psychology matters as much as facts and it could be a tipping point. Many business owners have never seen double-digits," said Rohit Arora, co-founder and CEO of small business lending platform Biz2Credit. "Every 50 basis points costs more and there's no denying it, psychologically, it is a big deal. ![]() "Business owners will be very careful taking out new debt next year," he added. "I think it's started already," Hurn said. But there will be an added psychological effect among potential new applicants. Servicing debt at a time of input inflation and labor inflation is forcing business owners to make much tougher decisions and sacrifice margin. The monthly interest payment owners will be making isn't very different from what's already become one of the primary costs of Fed rate hikes on Main Street. Many business owners have never seen double-digits percentage Personal Loans for 670 Credit Score or Lower Personal Loans for 580 Credit Score or Lower ![]() Best Debt Consolidation Loans for Bad Credit ![]()
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