Are You Ready for the Next Interest Rate Shift

Ready or not, it's coming: A few practical steps to keep your business running smoothly.

Interest rates have been one of the biggest topics in business finance over the past several years. After a period of historically low rates followed by significant increases, many business owners are left wondering what comes next, and how to prepare.

The truth is that no one can predict exactly where rates will go in the months ahead. What business owners can do, however, is understand how changing rates may affect operations and take steps now to better respond to economic shifts.

In business, change is inevitable, but you don't need to be caught off guard. Below are some practical steps you can take to better manage ever-changing market conditions.

Review Your Current Financing

A good starting point is to evaluate any loans, lines of credit, equipment financing, or other financing your business has in place today.

Take time to understand:

• Which loans have fixed interest rates
• Which loans have variable rates
• When loans mature or may require refinancing
• How interest costs impact your monthly cash flow

For businesses with variable-rate debt, even slight rate changes can affect monthly payments. Understanding how your business may be affected by changing rates can help you avoid surprises later.

If you're unsure how your financing may be affected by future rate movements, your financial partner can help you evaluate potential scenarios and identify options that support your goals.

Stress-Test Your Cash Flow

Interest rate changes can have a large ripple effect. They can influence borrowing costs, consumer spending, supplier pricing, and overall economic activity. That's why it's important to regularly review your cash flow projections.

Consider questions such as:

• How would your business perform if expenses increased?
• What happens if sales slow temporarily?
• Could your business comfortably take on higher borrowing costs?
• Do you have sufficient reserves to handle unexpected challenges?

Running through these scenarios can help identify opportunities to strengthen your financial position before they become urgent needs.

Evaluate Upcoming Borrowing Needs

If you're considering equipment purchases, facility improvements, expansion projects, or other significant investments, now may be a good time to revisit your plans.

While waiting for lower rates may seem appealing, delaying your investment plans can sometimes cost more than the financing itself.

Consider a local business owner planning to purchase new equipment within the next 12 months. Rather than waiting to see where rates move, they meet with their financial partner now to understand financing options, estimate monthly payments under different scenarios, and determine what investment makes sense for their business. If rates decline, great. If they don't, the business can still move forward because the decision was based on sound planning rather than speculation.

The right decision depends on your business goals, projected returns, and overall financial position. Having these conversations early can help you move forward when opportunities arise.

Maintain Access to Working Capital

Many businesses don't think about financing until they need it. Unfortunately, that's often the least advantageous time to seek credit. Establishing or reviewing a business line of credit before it's needed can give your business more options when opportunities or challenges arise.

Having access to working capital can help bridge seasonal fluctuations, manage unexpected expenses, or take advantage of growth opportunities.

Think of it as a financial safety net that's best put in place before you need to use it.

Put Excess Cash to Work

When rates change, borrowing costs often get most of the attention. However, your business deposits may also be affected. Reviewing your deposit accounts periodically can help ensure you're making the most of available cash while still keeping funds accessible for day-to-day operations and unexpected expenses.

The right balance between accessibility and earnings will vary depending on your operating needs and future plans.

Focus on What You Can Control

Economic conditions and interest rates will continue to change. That's part of the business landscape, and it's outside your control.

What successful businesses often have in common is a focus on the factors they can control: maintaining healthy cash flow, managing debt strategically, building reserves, and making informed financial decisions.

Businesses that regularly review their financial position are often better prepared to adapt, regardless of where rates move next.

Let's Talk About Your Business Goals

At First Citizens National Bank, we work with Mid-Ohio businesses every day to help them navigate changing financial conditions. We're here to help you make informed decisions about financing, cash flow, and future growth. By taking a proactive approach today, you can be better prepared for whatever comes next.