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  1. #1
    Senior Member Reputation points: 41851
    Join Date
    Mar 2015
    Boynton Beach, FL

    Rising interest rate environment.....


    The FED raised interest rates again yesterday and will likely raise rates two more times before year end. LIBOR is nor 2.05%. What effect does this have on customers? What effect does this have on financial institutions? Opinions please:

    Customers-Some are locked into fixed rates on commercial loans and real estate loans. This will not affect those customers much unless they have to enter the market for more debt or come up for renewal. They should be thinking now how to adjust operating expenses or margins to soften the blow if their rates go up. Those customers in floating rate facilities need to adjust their business models now. Some may consider selling their companies now that valuations are somewhat high and debt is fairly cheap to lever. If rates keep going up, leverage gets more expensive and valuations start coming down.

    Financial Institutions: For non-bank institutions rate increases will get very tricky. Most non-bank lender's facilities are floating with the rates. That being said, their cost of capital is now going up. The deals they have done for the last 12-18 months are now getting squeezed. Non-bank lenders will have to adjust rates up to stay profitable, but will have a tough time winning deals when there are hosts of bank owned finance companies that have emerged in the last few years. Hence the reason a lot of non-bank finance companies are for sale right now.

    Lenders, funders, and brokers need to educate the customers about the rate increases and how and what products to use to efficiently finance their companies. This is a tough sell because everybody has been screaming "I've got cheap money on lose terms" for the last 5 years.
    Seacoast Business Funding, a division of Seacoast Bank
    Kevin Henry-VP Business Development
    Boynton Beach, FL

  2. #2
    Great points, and agreed. It is a tough sell, but you hit the nail on the head with Educating the customers.

    This is an environment we are all subject to, and most of the time small business owners are so tunnel-visioned on their day-to-day ops, the last thing they are up on is the Fed's rate hikes, where LIBOR is sitting, and how that affects them. They truly appreciate someone guiding them through the landscape and how they and their options fit. Products may be getting more expensive, but Consultative Service is the Value what wins for all parties in the end.


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