I regularly discuss whether the time is right for a business to obtain a loan, but one thing not often talked about is how the overall business environment impacts that decision.

This year is shaping up to be a good year to secure a loan -- assuming your company is in a strong financial position.

At the Federal Reserve's final 2019 meeting, it left borrowing costs unchanged and indicated that it plans to keep rates steady throughout 2020.

That's good news for you: If you're looking to expand, 2020 is an excellent time to do it.

Loans aren't going to get a lot cheaper than they are now: You can likely line up a 10-year loan from the federal Small Business Administration with an interest rate of 7.5 percent. Who wouldn't enjoy terms like that?

Also, if your balance sheet is clean, now may be the time to refinance existing loans. Even if you're extending the length of your loans, the lower payments may give you much more significant cash flow to handle everyday needs.

Remember that recessions, or events that spur economic downturns, aren't always predictable -- even if the signs were evident in hindsight. So don't think you necessarily have plenty of time; again, that's assuming your company is in a strong position.

There's another benefit to this timing: When interest rates are low, everyone theoretically has more money, including your customers. That means that not only are they more likely to buy from you, but they're more likely to pay you back promptly. In turn, you can use that added cash to your benefit, whether it's to bolster reserves, pay off your own debt, or something else.

All this said, I can't say that everything is perfect. Low interest rates aren't entirely favorable, although the good certainly outweighs the bad.

One negative side effect can be higher insurance premiums. Because insurers won't be making as much on their investment, they may increase rates to make up the difference.

Overall economic activity may slow as retirees reduce their spending because the amount of interest income they receive declines.

Meantime, banks may eventually reduce lending because the lower interest doesn't make it worthwhile for them to take so many risks. Thus, some of your customers might eventually not be able to buy from you if they face a funding squeeze.

There's even the possibility of the so-called liquidity trap, which is when instead of spurring economic growth, low interest rates reduce the money flow as investments are made into assets that don't foster higher employment.

Of course, there's no guarantee any of these things happen, but they're worth keeping in mind as you try to take advantage of interest rates that almost assuredly won't be this low for long.

Published on: Jan 30, 2020
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