Since the 2008 low-interest era, the U.S. experienced a significant rise in interest rates in 2022, leading to increasing financial stress and a 30% upsurge in business bankruptcies. As a result, many banks are rejecting new business loan requests, leaving many entrepreneurs seeking alternative financing solutions that could be detrimental if not done right. Many of us were either too young to remember or we simply forgot about the massive inflation in the 1970’s. Better yet, we seemed to have amnesia about the highest federal funds rate in our country’s history bestowed upon us in 1980 at a whopping 20%, which negatively impacted mortgage and car interest rates, as well as business loan interest rates.

What's Normal?

The recent increased interest rates resemble a new economic “normal,” causing significant strain on businesses and potentially leading to more bankruptcies and loan defaults. There is a lot of speculation regarding what “normal” interest rates will finally be once the rates stabilize. As 2023 comes to an end, business owners are beginning to feel the effects of higher interest rates as they scramble to find new business loans to keep up with increasing costs of goods sold and increasing labor costs.

The new “normal” is coming and it will be painful for many business owners who need capital for their business. Below are a few pain points for business owners as they navigate this new economic normal.

Most Banks Are Pencils Down For New Commercial Loan Requests:
Find yourself a commercial lender with at least 10-years of experience who knows the bank’s commercial loan appetite and who will be fully transparent with you up front so you aren’t wasting time.

Commercial Real Estate Interest Rate Sticker Shock Is Real:
Those who have a commercial real estate loan that balloons or resets in the next year or two will see their Prime + 0% interest rate increase from 3.25% fixed to about 8.50% fixed, depending on what the fed funds rate is at the time. You may find this offensive, but it’s not your fault or your bank’s fault. The fact is, everyone now gets a higher rate due to the increased federal funds rate.

Are Your Business Advisors Working Against Each Other
Set up a quarterly lunch to introduce your accountant, bookkeeper, banker, and attorney to each other so that your advisors work together to help you achieve your capital goals. Never be afraid to have your advisors at the same table!

Unfortunately, many banks across America have begun to say “No” to new business loan requests, and business owners are no longer in the driver seat with the power to negotiate cheap interest rates. In fact, many banks have begun issuing covenant waivers to business owners for technical defaults, and you should quickly forward a copy of any covenant waiver to your attorney and accountant prior to signing.

Green Zone Capital Advisors excels by helping companies prepare for and obtain financing when bank financing is not an option or when they see the value that Green Zone offers when navigating more favorable loan structures. This is how Green Zone says “YES” more often!

Has your business been negatively impacted by the new “normal” interest rate environment? Find your funding now with Green Zone to determine how we can add value.