Fixed Interest Rates Can Provide Enhanced Stability

Posted: Updated:
Wojtowicz is president of Indianapolis-based Cambridge Capital Management Corp., a loan management firm she founded in 1983. Wojtowicz is president of Indianapolis-based Cambridge Capital Management Corp., a loan management firm she founded in 1983.

The Federal Reserve just raised its benchmark interest rate for the second time in three months. And it's bound to go higher this year. So, how heavy is your company's debt load? And will it grow heavier as your fluctuating interest rate climbs higher? This may be a good time to see where you stand with an eye to positioning your balance sheet for the remainder of 2017 and beyond.

There are plenty of other things to consider; inventory, employees, seasonal variations in business, competitors and taxes. You may want to expand and grow the business. You may even want to put it in shape to sell.

But your outgoing debt payments may be the elephant in the room. How much do you pay out each month on your principal and interest? How do these out flows affect  your ability to pay your other expenses? And are you able to retain enough cash on hand? You must decide how much debt is too much and react before your repayment burden pulls your company under or restricts your future plans.

The certainty of further interest rate increases may make a big difference in your monthly loan repayments.

Do I have your attention?

You might want to consider securing a fixed rate on some of your existing debt by consolidating existing loans and establishing a new payment schedule. Right now, most of your current commercial financing is probably tied to a floating interest rate and your payment is likely to fluctuate periodically. The obvious advantage of a fixed-rate loan is that the payment will never change from month-to-month, making it easier to plan your budget. Another advantage to consolidating is that you may be able to reduce your monthly debt payments. And, your loan could be structured to give you access to your equity for business expenses.

Not every loan program or refinancing option offers fixed-rate financing. Here’s one that does; the 504 loan program from the U.S. Small Business Administration. SBA 504 loans have been around for more than 30 years, but they haven’t always been able to refinance existing debt, so a lot of people are unaware they can even go this route.

The SBA 504’s refi option can consolidate your conventional, commercial business financing, but not existing SBA loans. That is, most existing commercial debt is eligible for a 504 refi loan. If your outstanding commercial loans meet the following criteria, they may be eligible for refinancing with a fixed-rate 504 loan:

Loan at least two years old and current for the last 12 months;

At least 85% of the loan proceeds must have been used for real estate, construction or to purchase equipment (these are criteria for a 504 loan);

You must occupy at least 51% of the property you are refinancing.

If these criteria describe your debt, you should call your business banker to determine if you are eligible for SBA 504 refinancing, and if this refi option will help stabilize your company’s budget.

There’s something in it for your banker, as well. The refi program is a powerful tool in the bank’s business loan portfolio. The loan’s structure protects the bank...thus encouraging the bank to offer the refi program to borrowers such as you.

This conversation between you and your banker could be one of the most important of your business year. Your company’s financial health affects your livelihood, and everyone who works for you.

Jean Wojtowicz is president of Cambridge Capital Management Corp.

  • Perspectives

    • Want A Guaranteed Negative Return?

      Here we go again! On Wednesday, August 14th, we watched the Dow Jones Industrial Average (DJIA) drop over 800 points.  The previous Monday the Dow ended down over 700 points. But what you may have missed is the sharp downward move in interest rates that has intensified with the recent stock market volatility. What does this mean for your portfolio?

    More

Subscribe

Name:
Company Name:
Email:
Confirm Email:
HTML
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections
INPower
Subscribe
Unsubscribe

Events



  • Most Popular Stories

    • ‘Transformation’ Continues in Westfield

      Indiana’s fastest growing city is showing no signs of slowing down.  Mayor Andy Cook says now that Westfield has established itself as a destination for family sports with the Grand Park Sports Campus, the $35 million Grand Junction Plaza will transform the city’s downtown into a destination, a place “where people want to be.”   Cook says the project, more than a decade in the making, is an example of a place making strategy necessary for Midwest...
    • Forbes Ranks Top Colleges; 3 Indiana Schools Make the Cut

      Forbes released its 12th annual ranking of America’s Top Colleges based on direct benefits a university or college provides its students. Several Indiana universities made the list in some “sub-categories”, like Grateful Graduates Index, but the University of Notre Dame was the only school in the state to break the top 20 overall rankings.

    • (photo courtesy The Times of Northwest Indiana)

      Hammond Pulls 135 Jobs from Illinois

      A Hammond factory recently vacated by Michigan-based Lear Corp. didn’t sit empty for very long. Midland Metal Products has taken over the former seat factory, having relocated from Chicago after 95 years. 

    • (courtesy Wes Mills)

      Purdue: Farmland Values Decline Fifth Straight Year

      The value of top-quality farmland in Indiana has declined continuing a five-year trend, according to the latest data from Purdue University.  The statewide average of the best cropland is $8,212 per acre, down more than five percent, or $456 per acre, from the same period last year. Purdue’s survey shows average and poor-quality farmland values also dropped, but not as much. Average quality farmland declined by 0.9 percent. Purdue says the poor...

    • (photo courtesy of TriCore Logic)

      Fort Wayne IT Firm Expanding

      TriCore Logic has announced plans to expand its office space and staff at its downtown Fort Wayne headquarters. The company plans to invest over $200,000 in the expansions. The 2010-founded company moved to the Anthony Wayne building in 2013, and now plan to grow their staff of five employees by up to eight over the next four years.