Interest rate cuts are generally good news for both businesses and consumers. Lower interest rates can make borrowing more affordable, and they are also usually accompanied by an increase in consumer spending.
Unfortunately, bank loans are not an endless supply of resources, readily available for anyone who wants to take advantage.
This is particularly true for businesses, which may be kicking the tires on bank loans in the wake of recent rate cuts. In its Sept. 2024 meeting, the U.S. Federal Reserve slashed rates by a half a point, and expectations are that further cuts could follow soon after.
However, lower interest rates do not necessarily translate to greater approval rates on bank loans. As such, reduced rates may not provide access to working capital that many companies desperately need to grow their business, particularly in the midst of a potential uptick in both consumer and corporate spending.
Experienced business owners know that relying on a single source of funding can limit their options, as not all lenders offer the same terms or support. Fortunately, at Raistone, we provide access to a variety of funding sources, including both bank and non-bank capital.
With Raistone, companies of all sizes have access to a suite of working capital products that service their unique needs in ways traditional lenders typically cannot.
What do interest rate cuts mean for small businesses?
Lower rates typically reduce borrowing costs, making it easier for businesses to manage their expenses and invest in growth. However, with stagnant loan approval rates from traditional banks, many SMBs may still face challenges accessing the funds they need.
Looking at recent trends, as reported by Biz2Credit, small business loan approval from big banks has remained stagnant with no signs of increasing. In 2022, January saw an approval rate of 14.5%, and the following January, a rate of 14.4%. This was tailed by a steady decline through the end of 2023, ultimately landing at around 13%.
With inflation cooling and an anticipated increase in consumer spending, some SMBs might need more inventory or cash to meet increased demand. As the historical average implies, bank loans cannot fully fund all small business loan requests.
That means a half-point decrease won’t have one homogenous blanket of influence across SMBs. Instead, what interest rate cuts mean for you will likely depend on a variety of factors. For example, how fast do you need funding? Is the lending market more competitive in your industry than in others? How’s your credit?
Business owners need to adopt proactive cash flow strategies, such as optimizing payment terms and exploring alternative funding options, to ensure they can take full advantage of lower interest rates. For example, Accounts Receivable Finance (ARF) through Raistone allows you to leverage your unpaid receivables to promote growth without taking on debt.
What if a bank loan can’t cover the full amount a business needs?
It’s great news when an SMB secures a bank loan at a reasonable interest rate, but it’s not always perfect. Even when it comes to successful loan applications, not all requests are granted in full. Business owners need to be able to leverage multiple avenues of funding to accommodate potential gaps and remain nimble. Some businesses, unfortunately, experience outright rejection of their loan applications.
What funding options are available for SMBs outside of traditional bank loans?
It is unclear whether interest rate cuts will lead to an increase in applications and competition for bank loans, or how they might affect the average approval rate for small businesses. However, having “too much” access to working capital is not a complaint we encounter often.
Obtaining multiple channels of access to working capital will allow your business to be more agile and accommodate evolving market pressures. Access to diverse, complimentary funding options will enable you to make better financial decisions for your business, and not every decision will have the same criteria.
The average bank loan interest rate for SMBs is around 6.14% to 12.47%. Raistone offers rates starting at 6%, making our ARF program a competitive option for businesses looking to leverage access to non-debt working capital. Unlike with traditional loans, rates are based on the credit of the buyer. If credit is a concern on bank loan applications, an ARF solution offers an alternative.
Raistone is also often a more affordable option than traditional factoring firms. Our curated marketplace of investors allows us to avoid the headaches typically associated with factoring, such as high rates or limitations on advanced payment amounts.
With Raistone, you can select which individual invoices you’d like to receive early payment on, and we offer the ability to advance up to 100% of their value. There’s no need to update processes with your buyers, and this can all complement other lending facilities you may already have.
Similar to selecting your mode of transport for any given outing, utilizing a combination of resources that fit your financial needs can improve efficiency. Would you choose the same form of travel to go from Miami to the Bahamas as you would for a trip from London to Manchester, or from San Antonio to Tokyo? Once the destination is set, Raistone can help you get there, whether solo or in tandem with other forms of lending.
Will an election change anything for SMBs?
With potential election-driven changes loitering in the minds of many, business owners have numerous factors to consider. Alterations to regulations, tax adjustments, and trade policies could significantly impact their businesses.
A poll revealed that over 61% of small business owners postpone major decisions until after elections, highlighting the influence political climate has on their business strategies. This hesitance can create a ripple effect, slowing down investments and hiring, which could hinder growth.
While it’s natural to feel indecisive, SMBs should not let election-related ruminations hinder their ability to capitalize on opportunities. Instead, businesses should focus on agile financial strategies that allow them to navigate doubt.
A robust, layered strategy for accessing working capital on your terms can provide stability during uncertain times. Whether interest rates continue to decrease, or political tensions and looming elections swing the lending market, it’s wise to have options in place to meet funding needs.
Non-debt working capital access for SMBs, regardless of interest rate cuts
There’s no need to limit your business to one source of funding. ARF allows businesses to maintain cash flow without taking on additional debt. Whether they need to replace or supplement traditional bank loans, Raistone helps bridge the gap for SMBs seeking to navigate the complexities of funding in today’s economic climate.
If you’d like to connect with a member of our team to learn more, please call 888-626-6593 or fill out this form.
About the author
Roman Lisovskiy is a dedicated sales professional with experience in lead generation, prospecting, and relationship building. He excels at navigating the complexities of sales processes to drive results while remaining committed to understanding client needs. As a Sales Development Representative at Raistone, Roman enjoys the everyday challenges and rewards of connecting with small- and medium-sized businesses and delivering tailored solutions. He earned his bachelor’s degree in communication and media studies from Randolph-Macon College and blends his academic background with practical skills to effectively connect with clients and stakeholders.
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