The Federal Reserve announced earlier this week that it plans to keep interest rates near zero through 2014. While there are convincing arguments on both sides regarding whether this is a good idea for the macro-economy, there’s no denying one thing: it’s great news for borrowers, especially small businesses and start-ups.
Take Small Business Administration 504 loans, which are paired with private-sector commercial loans, and which help small businesses purchase fixed assets, like real estate. Reuters reported last fall that the interest rates for Small Business Administration 504 loans are at unprecedented lows. The 20-year effective interest rate on a 504 loan—that is, the rate that small business borrowers pay, including servicing fees—is only 4.6%. 10-year 504 loans now have an effective interest rate of an even more miniscule 3.77%. Now with the Fed announcing its continuation of abnormally low interest rates, the good times should keep rolling.
In the past, high interest rates might have been enough to scare off even the most optimistic of borrowers. The thought of cascading debt left many wondering if Bank of America or Wells Fargo would eventually have to send around a guy that looks like this:
There’s never been a better time to borrow, as repayment terms have never been more generous.
So are you still thinking about that great wine bar/cloud computing/gourmet pet food store idea? Stop just thinking and start planning!