Financial Planning for October 2012

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Take Advantage of Extended Low Interest Rates

The Federal Reserve recently announced it would keep the federal funds rate at 0 percent to 0.25 percent at least through mid-2015. This nearly three-year timeline presents an excellent opportunity for Americans – both consumers and business owners alike.

Low interest rates make money less expensive to borrow and therefore increase the money supply available throughout the financial system. This currency strategy is designed to help spur the economy out of recessionary conditions.

For a small business, prolonged low interest rates are similar to cutting prices to encourage more foot traffic to a store. Typically, when sales revenues slow down, a firm will hold a sale or quote lower rates in order to drum up more business. Lower interest rates are designed to create a similar situation. By making it easier for you to borrow money at reasonable rates, you pay less money on the loan and invest more in the growth of your business. Significant cost savings can come from locking in a low interest rate loan, particularly if you’re considering making a major purchase that requires financing.

When you borrow money at less than the rate of inflation, it’s basically free money. The beauty behind using a bank’s money to finance purchases is that it enables you to maintain your current assets and investments in higher-performing assets – providing you with more flexibility and liquidity options. For small businesses in particular, the ability to fund high-ticket purchases or increase payrolls and jobs without impacting current cash flow can significantly contribute to a firm’s growth in a short time period.

The current three-year window of low rates provides the opportunity to invest in short-term, revenue-boosting investments for a long-term return. Funded improvements you might want to consider include:

  • Investing in technology to take advantage of social media, multimedia and sales opportunities via the web and mobile technology
  • Equipment
  • Vehicles
  • Commercial real estate
  • New store openings
  • Additional personnel
  • Refinancing of existing debt at lower rates to increase current cash flow

Low-Interest Rate Financing

The Small Business Lending Fund was established by the federal government in 2010 to provide $4 billion in funding to more than 330 qualified community banks. This effort was specifically initiated to stimulate small business lending. The SBLF is designed to give community banks financial incentive to make loans to credit-worthy small businesses with less than $50 million in annual revenues. Loans must be less than $10 million to qualify as small business lending under this program.

Furthermore, the State Small Business Credit Initiative was established in order to strengthen new and existing state programs that support lending to small businesses. This program has made approximately $1.4 billion in funds available to more than 150 state-run programs in 54 states and territories.

Combine Low Rates and Tax Deductions

In addition to enjoying lower rates on business loans, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 amended two tax advantages benefiting small business owners. The Code Section 179 deduction, which applies to leasehold improvements, restaurant and retail property, and new and used machinery and equipment, allows a business to treat the cost of qualifying property as an expense rather than a capital expenditure. The expensing limit is currently $139,000, and the cost of equipment limit is set at $560,000. The first year bonus depreciation deduction is 50 percent through 2012, but two recent proposals could increase the deduction to 100 percent through the end of the year.

Visit the Small Business Administration website to learn more about lending programs for which you might be eligible. The best way to take advantage of today’s low interest rates is to establish and maintain a strong working relationship with your bank or lending institution. It’s also a good idea to consult with your business or financial advisor who can collaborate with other professionals, such as a tax advisor, to help optimize your plans for future growth.


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