Many businesses are bracing for the impact of inflation. If previous years have taught businesses anything, it is that when inflation rises, so do interest rates on loans. Unfortunately, high-interest rates can place downward pressure on cash flow, placing businesses in dire financial straits. The good news is that there is a way for businesses to sidestep interest rate hikes and stop relying on loans entirely.
As Inflation Rises, So Do Interest Rates
The last 22 years have been a lesson in inflation and how it impacts business loans. Going into the Great Recession and for years after, it was nearly impossible for businesses to secure loans that did not have prohibitively high-interest rates, and alternative lending options – such as merchant cash advances – were even higher. Four years ago, the Fed raised interest rates upwards of five times in a single year to offset inflation. Now, between recovery from the pandemic, supply chain issues, international conflicts that impact oil reserves, and more, businesses should expect interest rates to go up on new and existing loans.
Loans and Cash Flow
When interest rates are steady, businesses can easily budget for loan payments. As inflation causes interest rates to rise, allocating revenue to cover loan payments becomes more complex, especially considering businesses also need to use the revenue for overhead, payroll, and more. When businesses issue invoices with staggered payment schedules of 30, 60, or 90 days, they cannot reliably determine when customers are going to pay for the products and services they purchased. Waiting on revenue can create gaps in cash flow, and loan payments have very rigid schedules. If a loan payment is missed, regardless of the reason, penalties are triggered, and businesses can even end up defaulting through no fault of their own.
Improving Cash Flow
Invoice factoring improves cash flow by turning unpaid invoices into cash. By using the services of a factoring company, businesses can stop waiting on customer payments, accelerate revenue, and always have capital on hand to cover loan payments, overhead, payroll, and more. Factoring also allows businesses to build up capital reserves, so they can finance their own operations and stop relying on debt-based loans entirely.
New Century Financial offers comprehensive invoice factoring services. We will turn your invoices into cash and make funds available within 24 hours. Get in front of interest rate hikes and inflation by talking to the professionals at New Century Financial today.