Businesses across Alabama are facing rising costs everywhere they look these days, from raw materials and labor to logistics and insurance premiums.
As a commercial banker in Montgomery, I’ve seen inflation directly affecting many of my clients in industries like hospitality, manufacturing and transportation. I spend a lot of my time right now showing people how to best deploy the money they have (or can borrow) to create value, while earning the best return they can. With that in mind, I’ve put together answers to questions business owners are asking me to help you navigate rising costs and inflation.
WHAT ARE SOME TRENDS YOU’RE SEEING AROUND RISING INTEREST RATES?
While some material costs are starting to level off, the labor market is tight and increasingly becoming more expensive. The rising interest rates have also impacted the cost of capital, so that is slowing the number of new deals. With rates more than doubling in a lot of cases, that definitely impacts growth.
DO YOU THINK RATES WILL CONTINUE TO INCREASE?
I think interest rates on loans will stabilize. For context, a loan secured today would carry an interest rate that’s five percentage points higher than the same loan two years ago. I know this can be shocking for businesses, but I don’t see rates dropping anytime soon.
HOW CAN MY BANKER HELP ME RIGHT NOW?
Now is a great time to take a fresh look at your business budget. Working with your banker, you can look at your cash flow and make sure your business is using it as efficiently as possible. One of many options is a zero-balance account* or ZBA. Using a ZBA, you consolidate your funds into one account that is earning interest, while holding your operating account at zero. When a transaction is initiated, the funds automatically transfer to the operating account. This simplifies your accounting and reconciling processes, while also saving you time and earning you money.
HOW CAN I SECURE THE BEST INTEREST RATE ON A NEW LOAN?
If you can lower the bank’s risk, you can lower your rate. In the current market, if you can work with the current rate, try to get a fixed term for as long as possible. The other side of this coin is that what you earn on deposits is also increasing. So, if you can work with your banker to increase deposits, you may not be losing as much to higher rates as you think.
INSURANCE PREMIUMS ARE INCREASING. DOYOU HAVE TIPS TO COMBAT THIS?
First, talk with your bank or your financial advisor. At Valley, we have Valley Insurance, which is designed to provide you with tools and a dedicated advisor to make sure you have the coverage you need at a cost you can afford. If rates are still higher than you can handle, our Agile Premium Finance division can be a great resource to help you tackle higher premium costs.
Valley National Bank is an FDIC Insured, regional bank. Banking products and services are provided through Valley National Bank and insurance products and services are provided by Valley Insurance Services, Inc. (“VIS”). VIS is an insurance agency and a subsidiary of Valley National Bank. © 2023 Valley National Bank. Member FDIC. Equal Opportunity Lender. All Rights Reserved.
