What business leaders should know in light of the 25 basis points cut from the Federal Reserve.
Loan Mantra urges small business owners and community business leaders to act with foresight following the Federal Reserve’s interest rate cut today, the first since December 2024. As rates move downward, small businesses have a window to plan strategically, protect margins, and position themselves for development.
The unusual combination of elevated inflation and cooling labor markets has Fed Chair, Jerome Powell, wary to limit all economic options in the near term. While rates are predicted to fall two more times before year-end, Powell cautions that cuts are likely but not imminent: “There are no paths forward being entirely risk-free now. It’s not incredibly obvious what to do.”
Raj Tulshan, CEO of Loan Mantra, reinforces the importance of knowing and preparing for evolving economic factors. “Any time the rate changes it creates a shifting landscape for borrowing and growth,” he says. Still Tulshan counsels small business owners, “Though rate cuts offer a window of opportunity, they also require discipline. Owners cannot assume a lower rate will solve every one of their challenges.”
Loan Mantra advises small business owners to be proactive in their financial planning as rates adjust and data continues to support or contest a downward trend throughout the quarter. For owners, this includes building cash reserves, performing debt review, and using smart financial tools to monitor their risk and exposure.
KEY RATE CHANGES & PREDICTIONS
- The Fed lowered its benchmark rate by 25 basis points, moving the federal funds rate to approximately 4.00%–4.25%.
- Projections from both Fed officials and external economists suggest two more rate cuts may occur before the end of the calendar year, assuming inflation moderates and economic data supports the loosening policy.
- Despite rate cuts, inflation remains elevated nearly a point above the Fed’s target of 2.0% and the labor market is showing signs of cooling. Business owners should know the risks of lagging effects, including persistent cost pressures for supplies and wages and high borrowing costs for loans.
IMPLICATIONS FOR SMALL BUSINESS
- Borrowing costs may decline, making new loans more affordable.
- Debt refinancing opportunities could free up working capital.
- Loan approvals, including SBA loans, may be easier to acquire and borrowing costs reduced as lender risk decreases and credit boxes expand.
- Still, and despite less expensive capital available to borrowers, persistent inflationary pressures may threaten the business’s margins. Labor and supply costs will likely continue to be high for SMEs throughout the year.
ACTION ITEMS FOR SME BORROWERS
Given the ongoing debate regarding this issue and stubbornly elevated inflation rates, Loan Mantra urges small business owners to reassess debt exposure, particularly related to variable-rate loans. Business owners should also continue to strengthen their credit profiles to secure favorable terms from conventional or SBA loans as required. A strong credit profile enables owners’ refinancing options as the rates trend downward. Finally, small business owners should tighten their cashflow management and continue to monitor the Fed’s decisions closely through the end of the year. Financial advisors at Loan Mantra will provide updates for the small business community in real time.
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ABOUT LOAN MANTRA
An end-to-end loan origination system and financial advisory team with a mission to democratize the lending process, Loan Mantra provides corporate sized services and access to new entrepreneurs, small, and medium sized businesses. Its award-winning and AI-powered platform is leading the way in financial technology and its expert team is helping borrowers secure prudent capital from all asset classes throughout the lifecycle of their business. To learn more, visit www.loanmantra.com.
