Rising Interest Rates Put a Strain on Small Businesses.
The merchant cash advance (MCA) market has been growing rapidly in recent years, as small businesses have turned to these short-term loans to meet their working capital needs. However, the rising interest rates in the United States are putting a strain on the MCA market, and small businesses are feeling the impact.
According to the Federal Reserve, the interest rate on the federal funds rate has increased by 75 basis points since March of 2022. This is the fastest pace of interest rate hikes in decades, and it is having a significant impact on the cost of borrowing for small businesses.
MCAs typically have much higher interest rates than traditional bank loans. For example, the average interest rate on an MCA is around 40%, while the average interest rate on a bank loan is around 5%. This means that small businesses that rely on MCAs to finance their operations are facing much higher borrowing costs.
The rising interest rates are also making it more difficult for small businesses to qualify for MCAs. Lenders are becoming more cautious about lending to small businesses, and they are requiring higher credit scores and more collateral. This is making it harder for small businesses to get the funding they need to grow and succeed.
The rising interest rates are having a negative impact on the MCA market, and small businesses are feeling the pain. The market is expected to slow down in the coming months, and some lenders may even exit the market altogether. This will make it even more difficult for small businesses to get the funding they need to survive and thrive.
Here are some tips for small businesses that are struggling with rising interest rates:
- Renegotiate your loan terms. If you have an existing MCA, you may be able to renegotiate your loan terms to get a lower interest rate.
- Consider other financing options. There are other types of financing options available to small businesses, such as bank loans, SBA loans, and credit cards. These options may have lower interest rates than MCAs.
- Review your cash flow. Make sure you are tracking your cash flow closely so that you can identify any potential problems early on.
- Cut costs. Look for ways to cut costs in your business so that you can free up more cash flow.
- Get help from a financial advisor. A financial advisor can help you develop a financial plan for your business and navigate the challenges of rising interest rates.
Rising interest rates are a challenge for small businesses, but there are steps that you can take to mitigate the impact. By following these tips, you can protect your business and keep it on track for success.
At Mach Funding, we are here to lend an ear, share insights, and chart a course toward financial stability. Whether you’re a business owner in need or a fellow professional seeking to extend a hand, let’s spark a dialogue. Together, we can uplift the backbone of our economy, one small business at a time.
