The Fed Has Cut Interest Rates To A 12-Year Low: Here’s What It Could Mean For Your Business
COVID-19, a novel coronavirus, has spread throughout the world, creating a pandemic while also spreading fear and uncertainty. Small business owners are particularly feeling the pain, as many not only have to worry about the health and safety of their loved ones but also about how to keep their businesses afloat. Some states, including Ohio and Illinois, have already shut down bars and dine-in services at restaurants through the end of March. Stores are shortening their hours, laying off workers, and taking other steps to prevent the spread of this virus.
Unfortunately, even a two-week closure could be enough to cripple some small businesses. Shuttered businesses aren’t bringing in revenue, but they still have bills to pay. In China, where the novel coronavirus originated, it is being reported that the economy has taken a serious hit since the first cases were diagnosed in January. This troubling news leads us to wonder where our own economy will stand when this virus is eradicated. Fortunately, the Federal Reserve is offering some relief.
Federal Reserve Cuts Interest Rates To 0%
In a move not seen since the financial crisis of 2008, on March 15th, 2020, the Federal Reserve cut interest rates a full percentage point to 0%. Benchmark interest rates ranging from 1% to 1.25% have been slashed to 0% to 0.25%. This interest rate reduction is a proactive move to help stabilize markets and keep borrowing costs low for consumers and businesses. For small business owners, being able to receive low-cost funding could be the difference between recovery and bankruptcy.
Lowered interest rates will remain in place indefinitely. According to the Federal Reserve, this safeguard will continue until it is “confident that the economy has weathered recent events.” Even when the threat of the virus disappears, there will still be economic challenges, but this measure and other actions taken by the Fed will hopefully ease the financial impact that we face in the months ahead.
Other Moves Made By The Fed
In addition to slashing interest rates, the Federal Reserve is making additional moves to counter the negative economic effects of the coronavirus. This includes bond purchases — or “quantitative easing” — that will help keep borrowing rates low for consumers and small businesses. The Fed announced plans to purchase at least $700 billion in mortgage-backed securities and Treasury bonds to further stabilize loans.
The Federal Reserve has also reached an agreement with five other central banks to lower rates on currency swaps and to help financial markets through these difficult times.
To allow banks to continue lending, the Federal Reserve has also dropped a requirement for these institutions to hold cash that’s equal to 10% of customer deposits. Instead, these funds can now be used to continue to issue loans. Financial institutions also are allowed to use cash buffers put in place following the recession of 2008.
What Does This Mean For Small Business Owners?
As a small business owner, you may be wondering what this means for you. These changes were put in place to help alleviate the pandemic’s impact on the economy and small businesses just like yours. Lowered interest rates, additional funds to be used for lending, and other measures taken by the Fed mean that you still have access to affordable loans to keep your business operating.
While uncertainty lies in the months ahead, it’s important for small business owners to take advantage of funding opportunities to keep their doors open. Whether you need a loan now to meet payroll or you need one in the near future as the economy recovers, know that there are options. For starters, take a look at Small Business Administration (SBA) loans, which have always been known for their low rates and favorable terms. In addition to its traditional lending products like the 7(a) loan, the SBA has also announced that it will be offering disaster relief loans to businesses affected by the coronavirus. Qualifying businesses may receive up to $2 million in working capital to replace lost funds as a result of the worldwide pandemic.
It’s easy to let anxiety take over with so much uncertainty ahead, but know that there are options available for your small business. During this time, it’s important to explore your funding options so that you can keep yourself and your employees safe while doing what’s best for your business.