Posted: June 15, 2022 | By: LendVer Staff –
The central bank announced the increase of its benchmark interest rate by 75 basis points after the meeting of its Federal Open Market Committee (FOMC) today. This marks the most aggressive rate increase since 1994, and follows an increase of 50 basis points in May of this year. Jerome Powell, chair of the Federal Reserve commented on future rate increases, “…today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common.” Powell added that he expects the July meeting to see an increase of 50 or 75 basis points.
Prior monetary policy aimed at stimulating the economy in the face of recession concerns and most recently, the COVID-19 pandemic, resulted in historically low interest rates. Inflation fears, supply chain disruptions, and Russia’s ongoing invasion of Ukraine underscore the Federal Reserve’s motivation behind the recent rate hikes. Until market pressures subside, many experts anticipate that rate increases will continue for the foreseeable future.
What This Means for You…
Many indexes to which consumer and business loan rates are tied, like the Wall Street Journal (WSJ) Prime Rate, correlate to the central bank’s benchmark rate. With this most recent rate increase of 75 basis points announced today, the WSJ Prime Rate has increased from 4.00% to 4.75%.
Loan Rates Will Increase
SBA 7(a) financing is a popular loan program for small business owners and offers low interest rates for commercial real estate loans, debt consolidation, working capital, and funds for other common business needs. However, interest rates for SBA 7(a) financing usually adjust quarterly to the current WSJ Prime Rate plus 1.75% to 2.75%. Borrowers with adjustable SBA 7(a) financing, or those considering obtaining it, should know that their interest rate may increase over time. Although SBA 7(a) loan rates are on the rise, they are still 0.75% lower than they were in December of 2018 when the WSJ Prime Rate sat at 5.50% (currently 4.75%). Benefits like high-LTV financing up to 90% of a property’s value, access to working capital, and a flexible use of proceeds are still strong enough compensating factors to consider SBA 7(a) financing for your current business expansion needs.
Fixed-Rate Financing Will Become Popular
Business owners seeking long-term fixed-rate financing will likely gravitate to lenders that offer SBA 504 financing which is a commercial real estate and heavy equipment financing program offering low rates (currently in the 5.00% range) fixed for up to 25-years. Residential and commercial property investors, and business owners seeking streamlined, light documentation financing can also access affordable 30-year fixed-rate financing.
Better Yields on Deposit Accounts
It won’t be long before big banks will have to stop offering embarrassingly low returns on deposit accounts (many currently offer rates of only 0.01% or 0.05% on checking and savings accounts). The best business bank account can often be found at an aggressive smaller bank, like Stearns Bank which is currently offering an annual percentage yield (APY) on deposit accounts up to 1.51%. Certificate of deposit (CD) rates are already starting to creep back up as well, with institutions like Stearns Bank offering an APY on CDs as high as 2.65%.
Although rate hikes by the Federal Reserve may seem like a scary thing, it’s important to keep in mind that this is being done to curb historically high inflation which is much worse. Additionally, benchmark rate increases are a sign that improving economic times may be ahead, and that the market can sustain a higher cost of borrowing. Most importantly, it means consumers and business owners may have a shot at receiving a fair yield on checking accounts, savings accounts, and CDs again.
Interested in accessing SBA 7(a), SBA 504, or 30-year fixed investment residential or commercial real estate financing? Contact our recommended best commercial real estate lender South End Capital.
Interested in opening a checking account, savings account, or CD that offers a market-leading annual percentage yield? Contact our recommended best business bank account provider Stearns Bank.