Last week, the Federal Reserve cut interest rates by half a percentage point.
Now, The Wall Street Journal reported Thursday (Sept. 26), small business owners aren’t sure how to proceed.
In some cases, the report says, the rate cut is prompting businesses to invest. For example, there’s Rental Concepts, a tire-and-wheel retailer in Arkansas, which now plans to open as many as three new stores next year.
“That they are starting to make those moves has given me the confidence to start the process again,” said CEO David Harrison, whose company has around 360 workers across 33 locations. “We are moving forward. We are cautiously optimistic.”
The WSJ — citing a survey from Vistage Worldwide — says that about a quarter of small business owners said a half-percentage-point reduction in rates would be enough to impact their business. Others said it would take months, and more cuts, for lower rates to add up to more borrowing or greater sales.
However, 31% of the surveyed businesses said rates would have to come down by a full percentage point for them to have an effect, while 27% said rate cuts would have zero impact, no matter the size.
Hector Guerra, chief executive of ERA Solutions, told the WSJ many of the small businesses he works with can’t grow because they can’t afford funding, something PYMNTS Intelligence research has found as well.
If the Fed were to cut rates by a full percentage point, “it would basically open up the banks,” said Guerra, whose Oklahoma firm develops applications websites and applications for small and medium sized businesses (SMBs).
“They can’t grow because they can’t borrow more money,” he said. “They can’t take on more risk.”
Writing about the rate cuts earlier this week, PYMNTS argued that while the Fed’s actions may provide “relief in the form of lower borrowing costs, but they also signal potential economic challenges ahead.”
Chief financial officers (CFOs) and treasurers “must prepare for an evolving macroeconomic environment where strategic financial management becomes critical,” the report added.
And in the wake of the news that some officials at the U.S. central bank have left the door open to the idea of further large interest rate reductions, embarking on a thorough reconsideration of strategies surrounding debt, liquidity, capital allocation and risk management is critical for finance function leaders.
“The rate cut has also potentially widened the aperture a bit for firms, and their bankers, assessing strategic mergers or acquisitions,” PYMNTS wrote.
