In June 2022, the Federal Reserve made a bold move in its effort to reduce inflation by announcing the largest interest rate increase in nearly three decades. The Federal Reserve raised its benchmark interest rate by .75 of a percentage point. This is the most significant change since 1994.
Because of this hike in interest rates, finding the best deal is essential for borrowers. First, let’s take a look at what these rising interest rates will affect before reviewing some strategies borrowers can implement to ensure they are receiving the best deal.
What Do Rising Interest Rates Affect?
According to Investopedia, rising interest rates affect the economy by influencing:
- Stocks
- Bond interest rates
- Consumer and business spending
- Inflation
- Recessions
Additionally, this particular hike in interest rates has already caused commercial real estate to show the first signs of cooling in more than a year. According to The Wallstreet Journal, property sales were down 16% in April after 13 consecutive months of increases.
This decrease, paired with other slows in economic activity, is influenced by investors’ hesitation surrounding high-interest rates or these rates forcing deals to collapse.
Rising interest rates also affect a range of borrowers, investors, financial planners, and financial institutions. A market with rising interest rates impacts:
- Any individual who is considering estate planning for estates that are at or near the estate tax exemption threshold.
- Investors who own traditional fixed-income investments, such as bonds, or who own assets.
How Do Borrowers Get the Best Deal as Interest Rates Rise?
Consult with Experienced Professionals
Since interest rates have been on a downward trend for roughly 40 years, many modern borrowers may have never experienced the current increase.
Therefore, borrowers may choose to enlist extra help in navigating these rates and ensure they are getting the best deal for themselves and their investment goals.
Try to Convert Existing Variable-Rate Loans Into Fixed-Rate
Borrowers may have utilized variable-rate loans to keep interest expenses low, depending upon the type of financing they obtained. However, variable-rate loans reset quickly and experience a significant increase following rising market rates.
Borrowers should think about switching to a fixed-rate loan to avoid these increases, if possible.
Consider Alternative Lending Options
Alternative lending refers to any type of lending that does not come from a traditional financial institution, such as a bank.
Alternative financing is an option for those who need funding in a timely manner or maybe having difficulty being approved for traditional loans.
Alternative lending often has the benefits of:
- Quick approval turnaround
- Simple application process
- More lenient guidelines than traditional financing
- Reduced risk of depending upon a single source for funding
In the past, borrowers were limited to traditional loans from established financial institutions. Now, a range of alternative financing options could be useful in a high-interest rate environment. Some examples of alternative lending options include:
Lines of Credit
A line of credit is a revolving loan that a borrower can access and use at any time on one specific project approved by the lender.
Crowdfunding
Crowdfunding is the process of funding a project by connecting to multiple investors.
Peer-to-Peer Lending
According to Investopedia, P2P lending “enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.”
Lending partners, like Innovative Capital, connect borrowers directly to investors. Since Innovative Capital sources multiple lenders, this partnership will provide the borrower with options as investors compete to set the best rates and terms.
Learn about alternative lending in more detail, here.
Cast a Wider Net with Multiple Lenders
Borrowers seeking capital can apply for capital from a mix of both traditional institutions and alternative lending options in order to find the best rates. This will help borrowers avoid the headache of putting all their eggs in one basket and not getting the rates they want, or being denied loans altogether.
In an ideal situation, instead of casting out one line, the borrower could cast out multiple lines to connect with several lenders to underwrite the request simultaneously.
Luckily, that’s exactly what we do at Innovative Capital Corporation.
How Innovative Capital Corporation Can Help You Get the Best Deal
At Innovative Capital, we serve our clients by leveraging:
- Our experience
- A constantly-evolving bank network
- In-house private capital
Our reputation is built upon an honest, straightforward approach that can fund loans within seven days, solve complex financing challenges, and find the best rate and terms for our clients.
We Will Leverage Offers For You
Rather than surveying one option at a time, our Innovative Capital team shares borrowing needs with a diverse selection of lending partners we think will be interested in funding your business needs.
Our resources allow us to leverage multiple offers from different locations to find the most beneficial deals for our clients.
How Will This Process Work For Borrowers?
Innovative Capital’s team consists of commercial bankers that are inspired to improve the results we provide our clients. We take the same loan application a bank would provide and then prepare your loan to be introduced to multiple banks. This strategy provides our clients with:
- A professional in your corner to do the work for you so you can focus on your business and family.
- Correctly present your loan request with underwriting in mind. You don’t have a second chance to make a first impression with lenders.
- Reduced Risk of having your loan declined with no backup options.
- Options to choose the loan that is best suited for their business.
- The knowledge that you’re getting the best rate and term.
- Access to quick funding when needed. We can fund in as little as 7 days utilizing in-house private capital.
We Have Experience in High-Interest Rate Environments
Innovative Capital Company began in 2007 with the intention of providing innovative solutions for our clients seeking capital. However, the timing of our founding aligned with the last Great Recession.
The last Great Recession tested just how innovative our company was and challenged us to become stronger and wiser.
We use this experience to serve our clients and help them navigate a similarly challenging market.
Ready to Get Started?
Review our recently funded loans or our rates, here.
Consult with us today about investing in commercial real estate. It’s the future of the economy.