Today’s low interest rates make the prospect of borrowing money that much more attractive for business owners. However, borrowing a significant amount of money to expedite your business’s growth has the potential to backfire. Let’s take a quick look at the pros and cons of borrowing money for your business at a low interest rate to help you determine if the cheap infusion of cash makes sense for your business.
The Benefits of Borrowing at Low Interest Rates
Low interest rates provide a golden opportunity to borrow money that ramps up your company’s growth in a short period of time. Furthermore, if you have existing debt, consolidating it at a lower rate will benefit your business in the long run. Borrowing money is also beneficial in that it provides funding in the event your business suffers an interruption.
Some businesses borrow money while interest rates are low to add to their inventory, ensuring demand can be met in full. Others choose to borrow to seize the opportunity to take advantage of a time-sensitive opportunity that is arising, will arise or has arisen in recent weeks/months.
In other cases, business owners choose to borrow money as they believe the small amount of interest paid on the borrowed funds will pale in comparison to the money made by using the borrowed capital to bolster the business. Though borrowing money for your business is not free, the little bit of interest you pay on the loan might prove negligible if it makes a positive impact on your company in terms of boosting demand, adding much-needed employees, expanding your market outreach, bolstering inventory or developing new products/services.
The Downside to Borrowing While Interest Rates are Low
Interest rates are lowered in an attempt to encourage businesses and others to spend money and boost economic activity. However, the mere fact that such financial stimulation is necessary is a sign the overarching economy is struggling. Borrowing money might not make sense if the economic contraction is significant enough to reduce demand for the business’s goods or services.
There is no sense borrowing money, even if the interest rates are low, if the capital won’t catalyze spending at your business. The worst-case scenario is borrowing a considerable amount of money, investing it in your business and not being able to pay back the loan. The failure to pay back the loan will damage your credit rating and might even spell doom for your business.
Find a Happy Medium
The moral of this story is there are both positives and negatives to borrowing while interest rates are low. Resist the temptation to take out a sizable loan, pay back the money you borrow in a timely manner and the low interest rates will prove beneficial to your business. Attain this happy medium between borrowing too much and not borrowing at all and you will find the infusion of cash makes it that much easier to grow your business, meet payroll, add new staff members, attract new customers and boost your company’s bottom line.
Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.