Focus on your return on investment when assessing the credit needs of your small business

Lately, when we hear about interest rates in the news, it’s usually about the rate at which they’re rising, how the Federal Reserve is using rising interest rates to fight inflation, and how these factors are making everything more expensive.

For small business owners, the long-term view is always important, but it is even more important in the periods we are experiencing now. Although higher interest rates can make securing a loan for your small business more expensive, that doesn’t mean you have to wait to get the funds you need in the hopes of lowering interest rates.

If your business may need financing, there are several ways to acquire it that will provide a good return on investment (ROI). Leaning on a challenging interest rate environment can actually provide opportunities to strengthen your business finances.

Here are some options for reinvesting in your small business and increasing your return on investment.

Think about the impact of inflation

As inflation puts businesses and consumers in a narrower financial position, short-term infusions can help your small business maintain cash flow, inventory at the levels it needs to thrive, and manage your purchasing power.

Inflation doesn’t seem to be going away any time soon, so look carefully at your short-term expenses and expected income to identify tides or gaps that could affect your business.

Acquisition of real estate

Owning real estate for your business can be a great engine for a return on investment, not only because of the equity your business builds, but also the revenue it can generate.

Small businesses that own their home and occupy at least 51% of the space can use the extra space to rent to other tenants, both commercial and residential, depending on how the property is zoned to establish successive revenue engines that can be reinvested back into the business and increase cash flow.

Owning the home of your business can also provide tax relief such as deducting annual interest paid on the loan and other costs associated with owning the property.

Determine what makes sense for your business

Not all financial needs of small businesses are the same, as are financing options. What works well for one business may not work so well for another.

Small business owners should consult with their creditors and accounting partners to determine their cash flows and financing needs and whether the loan makes sense to them, regardless of the interest rate environment, to maximize their return on investment.

In addition to buying real estate, some popular options that small businesses should consider include:

• Small business credit lines – Credit lines are great for providing cash flow if your business is experiencing seasonal changes in working capital, needs a short-term cash infusion to cover rising inventory costs, or has fast-growing business opportunities you want to take advantage of.

• Small Business Administration Loans (SBA). – SBA 7 (a) Loans are a popular option due to low cash investment, long repayment periods and guaranteed government support. This allows flexible credit requirements for borrowers who have challenges to obtain traditional bank financing. SBA 7 (a) Loans can be up to $ 5 million and provide repayment terms of 10-25 years at modest interest rates.

• Loans to finance equipment – Great option if your small business needs or sells equipment, these loans can help finance transactions and even provide tax relief.

No matter which direction is best for your small business in the current environment, keep in mind how your investment now can help you be well positioned for future success.

Anthony Ryan is Senior Vice President, Director of Retail Lending Strategy and Operations for WSFS Bank. Prior to that, he was senior vice president, director of small business lending. Ryan joined WSFS in 2011, bringing with him more than 30 years of experience in retail banking and small business.

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