Challenges and opportunities in a rising rate environment

As we look to the future, business owners are facing a number of challenges and uncertainties. One of the biggest concerns is the impact of increasing costs on their bottom line.

From rising labor costs to supply chain disruptions and higher interest rates, there are a number of factors that are driving up the cost of doing business.

At the same time, there are also signs of optimism and opportunity. As the economy continues to recover from the COVID-19 pandemic, there are a number of industries that are poised for growth and expansion. From industrial, technology and health care to renewable energy and infrastructure, these sectors are likely to see significant investment and innovation in the coming months and years.

For business owners, now is the time to look at their business to prepare for opportunities that may come their way. Higher interest rates and increased supplier costs are outside of a business owners control.

As cash flow tightens, it becomes more difficult to build cash reserves. Discussing your plans with your bank to get some insight in what the business cash flow looks like today and what the opportunities are should financing be needed in the future. Banks are trained in looking at risk and can demonstrate the areas that your business is being challenged. With this knowledge, a successful business can best position itself for the uncertainties that come while pursuing new growth opportunities.

Now is the time to look at ways to reduce expenses and your banking products are a good place to start. Is there an ability to consolidate or refinance your debt? Could loans be re-amortized to provide smaller payments? Can you replace higher rate, floating loans with fixed rate term options?

Being prepared and working to reduce your expenses will help when working capital is needed to take advantage of some of the growth opportunities that may come out of this environment. Capital may be needed to shore up inventory, expand facilities, invest in additional equipment or hire more people. Improving cash flow today will make it easier to get financing when needed.

As we just experienced a long period of low rates, some newer businesses may not know how to prepare for a rising-rate environment. Over the past decade, it was a great time to get low interest financing to start or grow the business. But most of this financing was done at a floating rate. As federal policies are indicating additional interest rate hikes are coming, now is the time to see if any floating rate loans can be locked into lower rates.

We have encouraged in this article that business owners should look to reduce expenses, but some may not be best to consider. When looking at expense reduction, how important is that expense to maintaining the strength or strategy of the business? Cutting quality that could result in losing customers will not provide the desired result of improving cash flow. You may even find some areas that increased expense can result in long term protection and possibly short term growth.

As history shows, rising rates can mean long-term strength to the economy and the potential for future stability for business. Whether you are a newer business or an established one, your bank's knowledge gained through longevity, as well customer experience, is an invaluable tool in helping you navigate the challenges you may face in this fluctuating economy.

• Anthony Catanese is the Business Development Manager at Union National Bank.