Inflation increased even more than expected. According to the US Bureau of Labor Statistics, the consumer price index, which measures the cost of everyday goods and services, rose 9.1% in June from the same month last year. The increase was the sharpest since November 1981.
Already weary after two years of COVID-19 lockdowns and restrictions, hiring difficulties, rising interest rates and supply chain confusion, small businesses must now deal with higher commodity prices and determine how much of the burden to transfer to their customers.
“Like most changes in the economy, rising interest rates send ripples that can affect business owners’ bottom lines,” said Chi Eze, vice president, small business banking manager for Bank of America in Owings Mills. “Higher interest rates mean more expensive loan payments, so it’s important for business owners to carefully consider their long-term cash flow and budgeting needs when considering funding sources.”
Hasan Mannan, market manager for business banking at JPMorgan Chase & Co., said a number of factors affect small businesses and that it’s important to look at the big picture.
“The cost of doing business, to be honest with you, has just gotten more expensive and it’s starting to put a strain on the bottom line of even the most profitable, well-run businesses,” he said.
In a Bank of America survey of small business owners conducted in March and April, nearly 90 percent said inflation was a major challenge.
“I think what’s happening in the interest rate market is that it’s really causing business owners and our customers to pause and really think and honestly analyze in a better way what they plan to use the capital for,” said Jason Weisberg, senior vice president and business banking team leader for Greater Baltimore at M&T Bank.
Regional banks are helping their small business customers in a number of ways in a higher rate environment.
“Our philosophy at M&T is really about banking on relationships and looking at longer-term goals,” Weisberg said. “As we’re meeting with clients, one of the No. 1 things we’re talking about and hearing about right now is around higher inflation.”
Weisberg said M&T is working to understand the impact of higher rates on customers.
“Every business is unique in where it is in its life cycle,” he said.
Bank of America’s Eze said the bank provides small business customers with advice, tools and resources to navigate challenging markets.
“Our small business specialists provide guidance specific to the unique goals and priorities of business owners,” she said.
Bank of America recently launched the Start a Business Center, a digital resource that offers small business customers and aspiring business owners business plan templates and information on business legal structures, marketing strategies and financing opportunities, among other topics.
JPMorgan Chase & Co. continues to open branches not only as a place to process deposits and withdrawals, but also as a resource center, Mannan said.
“If you’re a small business owner and … you just don’t know what’s available to you, you can come to one of the branches and we’ll sit there and walk you through all the options and choices you might have,” Mannan said .
When discussing inflation, banks look beyond the short-term impacts to help small business customers prepare for the long term.
Weisberg said M&T works with customers to assess their long-term goals. He presented the situation of a business facing a lease renewal and a large rent increase.
“It could be a great time to evaluate their longer-term plans and potentially purchase a property to help offset some of their real estate or operating costs, such as having space to run their business,” he said. “We can definitely help evaluate their finances and understand their long-term goals and provide capital for what this project can be.”
Bank of America’s Eze said banks can help business owners by providing tools that make visualizing and managing key aspects of their business as simple as possible, as well as lending options to help with financing needs. Small business professionals can also provide advice to help small business owners deal with the impact of inflation, from business plan reviews to customer loyalty strategies to identifying potential revenue streams.
When looking to the long term, JPMorgan Chase’s Mannan said he wants to examine how well-equipped businesses are to take advantage of the market once interest rates fall.
“We’re seeing more conversations around mergers and acquisitions and how companies can become more efficient,” he said. “Should they contribute assets and increase their output? Things of this nature are the conversations you need to start now because planning really takes some time.
Mannan stressed that small business owners need to understand what’s happening globally, nationally and locally, and that they talk to experts.
“It’s going to take some time to plan, so my point is you start thinking about what you’ve got in place for the next 12 to 16 months and then how well you’re prepared to take advantage of that once the market turns,” he said .