No one knows if interest rates will ever skyrocket. Some say the Fed is “keeping” rates low. Claiming without evidence or economic data that rates will skyrocket one day is runaway economics. However, using logic, small business owners can plan for three scenarios. Rates will go down. The rates will remain the same. Rates will go up. If rates go down…how far can they go? How long will they stay down? If the rates stay the same, how long will they stay the same? If they go up, how much will they go up and for how long? Small business owners, by creating a viable financial strategy as part of their business plan, can calculate the numbers in all three scenarios relative to their projections and current reliance on borrowed money. Consumers can do the same when it comes to home loans, credit cards, and student loans.
The last thing small business owners want to do in 2009 is NOT prepare for high interest rates in 2010 or 2011. I hope this doesn’t happen until 2011 or 2012. If we face very high interest rates in five years, I would. Don’t be surprised in the least. Maybe we’ll never experience double-digit interest rates again? Assuming this could be very detrimental to a small business owner. I’m not predicting double-digit rates. I am pointing out that the statistical probability of this happening increases as we come out of a Great Recession. I am not pointing this out for investment purposes. I am warning small business owners to be prepared.
CD holders would benefit from this, while small business owners who need certain types of financing would see more cash flow directed toward interest payments. Consumers will see higher credit card rates than the Empire State Building being moved to the top of Mount Olympus.
The bottom line for small business owners and managers: plan for the worst case scenario when it comes to cost of money. If rates stay the same or go down, we can breathe a sigh of relief. If Hurricane Interest Rate comes ashore, those who plan ahead by stocking up on food, money tape, and an emergency action plan will increase their chances of survival. Why be the neighbor everyone knows as the one that the winds took away in the dead of night while everyone else was safe at the local emergency shelter? No one knows if and when double-digit interest rates will happen after 2010, but at least you can watch the Financial Weather Channel!
