What Rising Interest Rates Mean for You and Your Bank (hint: get ready to pay more)

The Federal Reserve recently raised its benchmark rate for the second time in three months, to a range between 0.75% and 1%. Fed economists predict that interest rates will increase three more times to at least 1.25 percent by the end of 2017. Other factors to consider are new policies from the next administration intended to stimulate growth with tax cuts and infrastructure spending, which historically boost interest rates. 

UPDATE: As of 12/13/17, the Federal Reserve has raised the rate three times in 2017 year as predicted. The Fed also projected three more hikes in each of 2018 and 2019 before a long-run level of 2.8 percent is reached. The Fed did not raise its benchmark interest rate at the meeting in late January 2018, but is expected to raise rates at its next meeting in March.

What does that mean for staffing firms that fund with a bank?

 If you are currently funding with a bank, it is likely that with the looming increases, you will be required to pay more for your money in the near future.

As banks increase their rates, you will have to figure out how to offset the increased cost of borrowing. Will you be able to pass on those increased fees to your customers? Is that sustainable? The other option if you are not increasing your fees is to grow enough business to cover the new costs. The question is – how are you going to grow without more capital to invest in resources?

Other implicit costs of banking to consider

While taking out a low interest line of credit may seem like the cheapest way to finance your staffing firm on paper, there are several factors to consider besides the looming rate increases. You must take in to account the additional scrutiny, limited liquid capital, harsh credit limits and unexpected fees you often encounter at a bank. These costs can hamstring your business and make it hard to grow – take our client Denise from an IT Staffing company:

 “We couldn’t manage our payroll anymore, which is obviously a bad problem to have. Our bank’s requirements were so stringent, and they wouldn’t increase our line of credit. It really got us to the point where we would have to close our doors. If you grow 1%, but you’re short for payroll, your business is over, and the bank doesn’t care. You can’t grow without funding.”

Payroll funding… the better option

The days of banks offering competitive interests rates are numbered, so now is the time to explore your funding options.

With payroll funding companies like Advance, not only do you get flexible upfront funding, you also gain access to an arsenal of administrative and strategic support services tailored to your needs. With all of these benefits at comparable cost to funding with a bank, it’s time to step back and ask yourself whether traditional bank loans still make sense for your staffing firm. Contact a member of our team to discuss the advantages of payroll funding.