What does interest rate hikes and rising inflation mean for a small business owner? Check out these tips

What does interest rate hikes and rising inflation mean for a small business owner? Check out these tips

By Patty Juarez, Head of Diverse Segments for Wells Fargo

The Federal Open Market Committee (FOMC) increased rates a quarter point from .25% to .50% in March – the first time since 2018 – and is expected to raise short-term rates six more times this year. Russia’s invasion of Ukraine is also causing tremendous human and economic hardship worsening upward pressure on inflation in the U.S. With rates on the rise and growing costs of supplies and services, what does this mean for small business owners?

Rates on the rise

Interest rate hikes could fuel more costly borrowing, greater credit card costs, and changes to consumer spending habits – all of which can impact a small business owner’s bottom line.  To get prepared, here are a few tips for small business owners in a rising rate environment:

  1. Connect with a small business banker – There’s no reason to navigate this changing environment alone. A small business banker can help you understand your options based on your particular business and needs.
  2. Know your financial health – Because most small businesses are private, understating their solvency and long-term viability will take some examination. The good news is, there are some established ways to measure financial health like understanding your balance sheet, income statement, and cash flow is a great place to start. 
  3. Pressure check your business – What if rates continue to rise? Are you able to cover your credit and loan obligations if payments rise too? Running through scenarios to ensure your business can weather any sort of change is always a good idea.
  4. Review any variable rate loans you may have – If you have any adjustable rate loans, they will go up based on the recent actions from the Fed. Consider shifting your adjustable rate loan to a fixed rate product so that any future Fed rate changes no longer impact the cost of your borrowing. 
  5. Create a plan to pay down your high interest debt – Credit cards are the first to rise when rates climb so sit down and create a plan to tackle paying off this debt as soon as possible.


Inflation hits 40-year high

Small business owners are also grappling with rising costs due to growing inflation. According to the latest NFIB survey, 22 percent of owners reported that inflation was their single most important business problem. While many owners are raising their prices to deal with inflation, here are a few other tips to help offset these challenges:

  • Dust off your emergency plan – Now is a great time to run through “what if” scenarios and see if your business is ready. What if your supplies continue to rise? What if consumer spending changes and your business is impacted? What if your landlord, who is feeling the same pressures, raises your rent? It’ll be impossible to run through all potential scenarios but think through those that could have the largest impact to your business and make sure you’re prepared.
  • Become leaner – Cutting staff, product offerings or hours is never easy but temporarily, this may be an option until the issues stemming from rising inflation can cool down a bit. Look at your overall business and see if there are any areas that can take a break and be revisited down the road.
  • Access additional funds – Don’t be afraid to get help if needed. Connect with a small business banker and see if taking out a loan to help with cash flow fluctuations while inflation pressures continue. Each small business’s situation is different and a banker will be able to help share what next steps may be wise.

With inflation and interest rate hikes, now is a great time to take stock of your business’s financial situation, seek support from a small business banker, and assess what other changes might make sense for your business during this time.


Information and views provided are general in nature and are not legal, tax, or investment advice. Wells Fargo makes no warranties as to accuracy or completeness of information, including but not limited to information provided by third parties; does not endorse any non-Wells Fargo companies, products, or services described here; and takes no liability for your use of this information. Information and suggestions regarding business risk management and safeguards do not necessarily represent Wells Fargo’s business practices or experience. Please contact your own legal, tax, or financial advisors regarding your specific business needs before taking any action based upon this information.