Can High Interest Rates Actually Supercharge Your Small Business?

High interest rates make every small business owner antsy. Do I get a loan now, do I wait? Securing funding gets harder, and the cost of capital makes your heart race. But what if, we flip the script and use it as leverage? When everyone is else contracting, that’s when we should be expanding!

The Efficiency Challenge

Like a forced "money fast," high interest rates put every expense under a microscope. Are you really squeezing every last drop out of your toothpaste? A client of mine found that they were able to identify and cut costs they hadn't noticed when money was easier to borrow.

• Action Step: Have you looked for hidden costs lately? Examine every process. Could you streamline ordering to minimize waste? Could you negotiate better rates with suppliers? Can you find a supplier that will help you make money and buy smarter? 

The "Strike Zone" – Invest Wisely

When money is expensive, every deal matters. One client I worked with created a strict "strike zone" – they only buy inventory within a specific price range, even if it means occasionally running lean stock. When the right opportunity hits their "strike zone," they're ready to pounce, maximizing ROI.

• Action Step: Do you have a clearly defined "strike zone" for inventory, equipment, or expansion? Consider short-term sacrifices to gain long-term advantages. What about employees? Do you have a clearly defined strike zone to take advantage of a GREAT hire? 

Show Me the... Value!

In a tighter economy, clients get pickier. Justifying your price isn't enough; your value prop must be crystal clear. When value is double the price, clients willingly pay because they see the clear benefit.

• Action Step: Put yourself in the client's shoes. Do they experience a 2:1 or even 3:1 value-to-price ratio on first contact? Brainstorm ways to build value at every customer touchpoint, this can be through exceptional service or unique product features.

Financial Discipline – Build Those Muscles

High interest rates aren't just about borrowing costs; they encourage better financial management overall. It's time to:

• Budget rigorously: Fixed vs. variable costs become critical to understand. Use your budget as a flexible, evolving tool for decision-making.

• Track Cash Flow: Is your business truly growing? Cash flow trends reveal insights your top-line revenue might hide.

• Master your financials: Your income statement and balance sheet offer a detailed health assessment of your business. Analyze every line and connect numbers to the behaviors driving those figures.

• Action Step: What rhythms work for you – monthly deep dives, quarterly reviews? Build a system that empowers you to make data-driven decisions.
  

Creative Alternatives – Beyond the Banks

Traditional bank loans are often out of reach for small businesses, especially in a high-interest environment. We have found that 80% of the time Small Business Owners are getting turned down from the institution where they hold their deposits. That’s why it’s important to know who to call and where to go.

• Factoring: Sell your unpaid invoices for immediate cash flow.

• Lines of Credit: Access funds as needed, paying interest only on what you use. Great for covering seasonal cash flow fluctuations.

• Equipment Financing: Secure equipment without hefty upfront costs, spreading out payments and improving cash flow.

• Action Step: Make it a point to understand alternative financing in your industry. What solutions have helped other businesses like yours?
  

Blog Exclusive: Put More Skin in the Game

Want to slash financing costs? The slightly tongue-in-cheek secret is – finance less! A larger down payment significantly reduces interest over time. This takes dedication and saving, but it's the ultimate financial discipline exercise. It not only saves on interest, but your commitment sends a powerful message to investors and lenders.

What’s great about rising interest rates, is eventually, prices will come down. At that time, Cash is King. The more you have, the better you’ll be able to buy. I used to work for a guy that would say, “Bought Right, is Half Sold”. Meaning if you buy right, you can sell it fast because you’ll have acquired it at a good cost.

Conclusion

Rising interest rates naturally create concern. But remember, entrepreneurs thrive on turning problems into possibilities. Use this time to hone efficiency, boost value, master your financials, and explore creative financing. You might just discover your business flourishing in ways you never anticipated.