afeUSA advocates amplified the voice of small businesses and communicated your need for affordable funding to the Federal level by writing Representative Steve Chabot and Representative Nydia Velázquez, chair and ranking member of the House Committee on Small Business, to express the need to maintain low interest rates to encourage small business growth.

Interest

Interest rates are relative to the supply and demand of money available in the marketplace. They have an inverse relationship. The Federal Reserve was created in the early twentieth century in an effort to create a safe and stable financial system. Increased interest rates lead to inflation or the scarcity of cash within the economy, which slows economic growth. Decreased interest rates lead to deflation, which can increase economic growth due to the abundance of cash available within the economy. The Federal Reserve has the ability to increase or decrease the amount of money available within the economy to counter inflation or deflation in an effort to maintain stability within the marketplace.

Cash

When there is a lot of cash available within the economy, the Federal Reserve increases interest rates to reflect the abundance of funds available and restrict deflation. When funding within the economy becomes scarce, the Federal Reserve decreases interest rates to encourage spending and counteract inflation.  This fluctuation in interest rates has several impacts on small businesses.

Lending

When interest rates increase, it becomes more expensive for businesses to take out loans. This increased expense restricts a business’ ability to grow, pay for operations, or even payroll expenses. Decreased interest rates increase consumer spending. When consumers are buying more products, businesses’ ability to expand and grow increases due to increase of cheaper funding made available to them. They are able to build plants and hire more staff at a much cheaper rate. Eventually the increased demand on goods and services drives companies to raise their prices, which increases inflation. Once the rates of inflation reach a critical point, this prompts the Federal Reserve to restrict cash in the market so inflation does not increase out of control.

Businesses keep close watch on the markets in an attempt to forecast the best possible times to access funding to expand their enterprise. No business owner wants to invest at the wrong time and waste their money by paying interest when they could be investing that money into expanding their own company.  That’s why it’s more important now than ever to keep a keen eye on the policies being developed and stay in touch with how those new policies could impact the economy, interest rates, and your business.