A lot of business owners in today’s economic environment are asking the question “Why would I want to borrow money now?” The answer is simple and I will expound on it. This is actually the best time to borrow, even if your personal credit isn’t the best… Borrowing rates are still extremely low, in fact, at the close of business on Friday, March, 2nd 2018, the prime rate (that is the rate at which a person with great credit can borrow at) was 4.50* which means, even with bad credit, the borrowing rate is cheaper for a business than it has been at other times in the market.
Moreover, this is great time to expand an operation, as of the last jobs report (February, 2nd 2018) we are still trending up in the employment category. This had been a consistent theme for over a year now, which signals the start of a viable and sustainable economic recovery and for a business this signals a time where consumers will have more excess cash flow and thus will be able to consume the products and services that business have to offer at a more consistent and frequent rate, thereby, creating an increased demand, that will need to be met with more supply… Coupled together this raises the equilibrium price of products which increases the revenue of a business and allows them to employ more people who will in turn consume more. However, as economies recover, the cost of borrowing money, be it individually or for businesses increases. Thus, now is a great time to borrow because rates are still low, and thus, businesses can gain access to cheap capital that they can employ to increase their bottom line…
Borrowing is a good strategy for businesses who have a sound, realistically viable plan of how to direct the capital in a productive manner that produces a tangible result and has a direct and positive impact on the financial statement. Borrowing, instead of using free cash flow that a business has available, allows the business to stay liquid, thus, in the event of a slow month, or couple of month, the business will have the available cash flow to keep the company operational without having to take other measures that will further constrict the companies capital position. So borrowing is not only a smart way to expand a companies operations and increase revenue output, but at this time, it is an inexpensive way to achieve this opportunity.
*According to the WSJ Prime Rate report.
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