Interest Rates are Staying Low: Here’s How to Capitalize
Every business owner knows the importance of reinvesting in the business. You buy better equipment or hire better people, and it eventually trickles down to the bottom line where you make that money back (and then some). Every once in a while, borrowing offers an opportunity to get ahead quicker at the cost of also bringing on debt. Many times, this cost is worth it — especially today, when interest rates hover closer to zero than they’ve ever been.
Earlier in 2020, the Federal Reserve announced that it would lower interest rates to historic levels — from zero to a quarter percentage point, depending on the product. For manufacturers, this means easier access to capital with almost no risk attached.
Why are rates so low?
Low interest rates are one of the Federal Government’s fiscal tools to stimulate the economy. Lower interest rates encourage borrowing, which encourages spending, which has rippling effects that uplift different areas of the economy.
Whereas a business might choose not to finance new equipment purchases with a capital improvement loan that has a high interest rate, these low interest rates unburden them of hefty repayments, making them more willing to borrow. Right now, in times of economic uncertainty and lingering struggles from COVID-19, borrowing is a key part of the strategy to keep the economy moving in the right direction.
How to capitalize on access to capital
For many businesses, the prospect of an almost interest-free loan opens many doors. Here are a few of the best ways to put capital to use in times of uncertainty — especially for risk-averse companies weary about taking on debt.
- Employee training. An investment in your workforce is one of the best you can make. Get your employees up to speed on new practices and procedures. Train new management. Fill skills gaps out on the floor. The investment in skills is one that will repay itself in efficiency, productivity, return on investment (ROI), company culture, and numerous other ways.
- Equipment investments. Equipment is the lifeblood of your manufacturing operation, and it’s always a good investment. Obviously repairs and maintenance are a vital investment to make, but so are upgrades. If your life cycle planning shows a machine that’s on its way out, you can preempt failure with a proactive investment.
- Capital improvements. Your facilities are as important as your operations because that’s where they’re housed! Capital improvements to modernize your facilities can be a great way to improve your workplace in more than a few meaningful ways. Whether it’s a new air handling system or office improvements, these investments are money well-spent.
- Digitization and Industrial Internet of Things (IIoT) investments. Let’s face it, digitization is the future. It’s also expensive. Now might be the best time to accept a low-interest loan and make major inroads into building out your IIoT. It’s an investment with powerful potential for returns.
As with any investment, the name of the game is ROI. A loan with an advantageous interest rate is an opportunity, but it’s still beholden to the same logic as any other debt-encumbering decision. Consider where the money is best spent in your business and make plans to see it recouped as quickly as possible — especially considering the question marks for industry ahead.