How recent interest rate cuts impact small business financing-and how you can help

The Federal Reserve Bank’s recent, long-awaited interest rate cuts arrive at a critical time for your small business clients. Although inflation has cooled, it’s still affecting virtually every decision they make. Average earnings for small businesses have taken a beating—even as revenues have increased, costs have outpaced revenue growth. As a result, the real earnings that small business owners are achieving have actually declined since pandemic restrictions started lifting in 2021. For businesses in industries that are highly reliant on disposables and consumables, such as restaurants, inflation continues to have an even deeper impact—their costs are still rising, even if not as quickly as before. They can’t just start selling $25 hamburgers to cover their costs, pay their people, and still make a profit. They’re getting squeezed.

Lower interest rates present an opportunity for your small business clients who are still grappling with inflation and constant pressure on their bottom lines. This long-awaited shift can open the door to new opportunity for those clients and for your firm. They need a trusted advisor who can examine their books and help determine which business opportunities they should pursue now, and which they should set aside until we all have greater clarity about the broader economic landscape. Whether your clients are aiming to finance growth, manage existing debt, or pursue some other key strategies, they need expert advice and guidance—and your firm is ideally positioned to provide it.

Interest rates have an important role to play in their decision making. You can take advantage of this moment by striking up the interest rate conversation with small business clients, educating them about how the cuts can affect them, and showing them a wider range of opportunities for capitalizing on them. This article can serve as a practical guide to those conversations.

How will rate cuts affect small businesses?
Small businesses have a lot to gain from rate cuts—in some obvious ways and some that may be less visible at first. Here’s what your clients need to know.

Lower borrowing costs
Lower rates lead to more affordable loans. This may be the most obvious result of rate cuts. But the downstream impact of more affordable loans may not be as clear to your small business clients. For example, with better loan terms, they can position themselves to manage their cash flow, fund expansion or refinance high-interest debt.

Increased loan availability
Small businesses face notorious challenges in securing loans, because they typically rely on smaller, regional banks for financing, which often offer less choice and less desirable terms than their larger counterparts. However, lower rates can change the equation, helping small businesses gain access to financing options that may have been out of reach before.

Expanded long-term financing opportunities
Following the rate cut, banks and other SBA lenders immediately began charging lower rates for long-term SBA loans. Small businesses should seize this opportunity to secure favorable long-term rates that can be particularly useful for capital investments.

Three key advisory opportunities for firms
Don’t allow rate-cut conversations with clients to be open-ended. Have a plan before the conversation even starts

• Evaluate financing opportunities. Do your small business clients have a complete understanding of their current financial positions to inform their decisions on whether or not to take on new debt or how much debt to take on? Chances are, they don’t have the full picture. This is where services from your firm such as cash flow analysis and financial planning can play a big role in helping clients make smarter, more informed decisions that they won’t regret down the road.
• Refinance existing loans. Over the years, many small business clients string together financing based on short- term needs, accepting less-than-favorable loan terms to seize an immediate opportunity or simply to make payroll when times are lean (for example). Rate cuts present an opportunity to restructure and refinance their debt load to improve cash flow, reduce expenses and give them more flexibility in future financial decision- making. Your firm can not only help them identify important opportunities for refinancing but can even directly help them execute refinancing. (More on that below.)
• Develop a strategic plan for the future. Rate cuts present an immediate opportunity for clients. But they should be presented in the context of long-term planning—a chance to say to clients, “If you think this is valuable, just imagine what we could do if we put together a real long-term plan for you to help you reach your goals.” Treat every advisory conversation as a potential stepstone to a larger long-term planning engagement.

The CPA Business Funding Portal—your hub for helping small biz clients
If you’ve been looking for a way to spark new advisory conversations with clients, the Fed’s rate cut offers a prime opportunity. And once the first conversation turns into something more serious, the CPA Business Funding Portal can help you deliver. The portal is a practical, hands-on tool you can use to help your small business clients identify and secure financing opportunities. Using the portal, your firm can deliver comprehensive financing advisory services to your clients and better support their business funding needs (while also earning revenue) through SBA 7(a) loans, term loans, and revenue-based financing—all from one central hub.

If you’re not already familiar with the CPA Business Funding Portal, take a few moments to check out what it’s all about. See what other CPAs say about their experiences with the portal, view our webinars, apply for a portal account, or contact CPA.com to find out more .

About the author:
Charles Groome, is the VP of Growth Strategy & Operations at Biz2Credit, a leading FinTech company that has facilitated over $7 billion in funding for U.S. small businesses, serving over 250,000 clients. With over a decade of experience in FinTech, Charles has a proven track record of scaling businesses through data-driven strategies. He is passionate about leveraging tech to empower small businesses and drive their success.