Many believe that the increase in the interest rate will have a minimal effect in consumers wallets, and others believe small business borrowing will have no change despite this. Borrowing for the small business owner they believe is not a matter of whether the interest rate is high or not, but whether the small business owner believe borrowing can benefit their business or not.
For more about this and other topics follow the links below.
Everything You Need To Know About How The Rate Hike Will Affect Your Wallet
For the first time since 2006, the Federal Reserve has announced that it will raise interest rates by 25 basis points. This means that it is increasing the target for short term interest rates to a range of 0.25% to 0.50% from a range of 0% to 0.25%.
Within minutes of the Fed’s decision Wednesday, Wells Fargo, JPMorgan Chase and US Bancorp became the first banks to announce that they would increase their prime rate, a rate used for consumer loans like mortgages. Effective December 17, the prime rate at Wells, JPM and US Bancorp will move from 3.25% to 3.5%. Later in the afternoon, Citibank announced a similar move; many other banks are likely to follow suit.
Yet despite this and despite all the hubbub surrounding the Fed’s decision – journalists and Fed watchers have literally been talking about a rate hike for years – the immediate impact to consumers’ wallets will be virtually indiscernible. Fed chair Janet Yellen even said as much in her Wednesday afternoon press conference.
Small businesses like Nick’s Roast Beef may be easy targets for the IRS, says expert
Nick’s Roast Beef, a small family-owned business in Beverly, was federally indicted Monday and charged with reporting false tax statements.
As it turns out, Nick’s may be just one of many small businesses the IRS keeps a close watch on, according to Forbes.
Small businesses that run cash-only operations make easy targets for the federal government, defense attorney Joel Androphy told Forbes. All the while, bigger, more sophisticated businesses get a pass because the work to prove evasion can be more complicated, requiring more time and work, he said.
Many of the cases the IRS works on come from the “Whistleblower” program and involve small businesses with claims under $2 million, which is small in comparison to what some large corporations may be hiding, according to Forbes.
Don’t expect Main Street to accelerate borrowing overnight
What’s more relevant to small business lending appetite is optimism.
As years of low interest rates start to wind down, don’t expect Main Street to accelerate borrowing overnight.
There can often be a disconnect between the Fed and smaller businesses, which are driven by other variables including cash flow, business opportunities and loan availability and terms. If you’re a growing business, you’ve likely already signed onto loans. For the rest of the smaller guys, however, it’s likely borrowing will ramp up gradually to stay ahead of higher lending rates. And if anything can trigger more borrowing for small companies, it’s a more upbeat mood about business prospects.
“Business credit is so different than consumer credit. It’s driven far less by rates and far more by availability in terms of both loans and market opportunities,” said Jeff Stibel, vice chairman of business researcher Dun & Bradstreet. “Rates are almost irrelevant.”
The Federal Reserve, as widely expected, approved a quarter-point increase in its target funds rate on Wednesday. It was the first rate increase in nearly a decade.
