The Feds raised the interest rates by .75% this week. That’s not good news, especially as it comes on the heels of May’s .50% increase. Another Federal Reserve meeting is scheduled for the end of July and economists predict interest rate increases again before the end of the year, by as much as 1.75%.

Why is the Federal Reserve raising interest rates? The reasoning behind the decision is that higher borrowing costs will slow the rate of inflation by curbing demand.

Economists call it a “trickle-down effect” but for small business owners, it may be akin to a deluge. There are two main ways rising interest rates affect small businesses: The higher rates affect the businesses and the higher rates affect their customers.

Trickier Credit Navigation – Many business loans have variable rates and monthly payments will become higher. As a result, vendors’ confidence,  as well as vendors and suppliers may be more cautious about extending credit to small businesses, thus developing different terms for repayment.

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