To say that we are experiencing inflation is to oversimplify a mixed and complex issue. On the one hand, fuel prices are dropping and supply chain issues are starting to clear up. On the other hand, the cost of goods, equipment, and property remains high, placing a strain on consumers and businesses alike. There is an obvious disparity and it looks like interest rate hikes in the very near future. So how are businesses expected to thrive and get ahead in the current economic climate?
Paying Now for Everything in 2020
A lot of the current economic issues go back to the pandemic. PPP loans, the stimulus checks sent out to private citizens, businesses seeking relief from furloughs, and the start of supply chain woes all took place that year. Suspending and forgiving debt was absolutely necessary to keep the economy moving while businesses, schools, and people, were locked down for over a year. However, that money did not come out of thin air, and a big part of what we are seeing now is the proverbial rubber band snapping back after being stretched too far. In the trucking industry, the disparity can be traced back even earlier to threats of tariffs in 2018 and 2019 that put negotiation power in the hands of shippers that had too many products and drove down consumer demand. In short, it has been an absolute roller coaster for the past three or four years.
The Invisible Hand of the Federal Reserve
Throughout all of this, the Federal Reserve has been in the background trying to achieve a balance for everyone involved. Back in 2017-2019, the Fed raised interest rates multiple times – at one point over four times in a single month) to offset rising inflation. The drawback to this is that raising interest rates keeps businesses from getting the financing they need. Businesses can always raise the prices of their products and services – as we are seeing now – to offset the difference, but that is an additional risk. Raising prices can be offputting to customers, and they will always look for the least expensive option, even if that means going overseas. Unfortunately, raising or lowering interest rates is really the only tool the Fed has to mitigate economic obstacles, and when all you have is a hammer, you start treating every problem like a nail, so to speak.
The Repercussions of Interest Rate Hikes
No one likes interest rate hikes because of the very real trickle-down effect it has on every aspect of the economy. Higher interest rates mean businesses cannot afford their current loans, while small and medium-sized businesses are discouraged from getting the funding they need due to rising credit and collateral requirements, as well as interest rates. This prevents economic growth and can lead to further stagnation. In extreme cases, a spike in interest rates can lead to a full recession, and most business owners still have nightmares about the last one in 2007/2008.
Safer, Faster, and More Affordable Business Financing
Traditional lending channels have been tightening their requirements since the Great Recession and pushing as much risk as possible onto business borrowers. Yet high interest rates are completely turning off businesses from the idea of taking on debt. So how are businesses getting the capital they need to stay ahead? Instead of looking for an external source of funding, businesses are leveraging their unpaid receivables to boost cash flow and build up capital reserves. Accounts receivable factoring is a simple exchange of an asset – in this case, unpaid invoices – for cash. Factoring does not place any debt on the balance sheet, there are no ongoing payments, and best of all, there is no interest. This allows businesses to finance their operations and growth plans from within, while also moving away from traditional debt-based loan structures.
Single Point Capital provides comprehensive accounts receivable factoring solutions for businesses, providing a viable, efficient, and accessible path forward as the Federal Reserve prepares for a new round of interest hikes. Our factoring services allow businesses to accelerate cash flow, build up capital, preserve their credit ratings, and get an edge over the competition. To get started, contact the team at Single Point Capital today.