We often don’t realize the impact interest rates have on the economy and businesses around us. In terms of commercial financing in Florida, interest rates greatly impact local businesses and large commercial industries, and the impact is not small. There is particular interest in the real estate market, where developers and investors are facing the tough challenges of volatile rates.
Here we take a closer look at what these rates mean for businesses and analyze the current interest rate climate.
Understanding Florida Commercial Financing
The current interest rate climate
For almost two years we have seen numerous rate adjustments by the Federal Reserve. Rates have been steadily rising, with over 7 rate hikes since 2022. Rate increases are generally incorporated to fight inflation. Unfortunately for businesses, lenders and consumers, this means loans are much more expensive. Every rate increase increases the costs for each of these parties.
As interest rates rise, so does the cost of debt. Borrowers will pay much more to repay their loans and may not be able to afford to borrow as much. At the same time, lenders are paying higher prices to get funded and service loans. And then there are the consumers who are ultimately eating into the rising costs by paying much more for the goods, services and real estate they purchase.
Where do interest rates go from here?
The sad truth is that we simply don’t know what will continue to happen to interest rates in the future. We can certainly hope for a decrease in rates and inflation, but there is no guarantee of this. The Federal Reserve has a stated plan to tighten monetary policy, which is where many of these increases originated. At last check there was still a long way to go to reach the final resting place.
Helpful tips for navigating current markets
There is no simple answer or solution to the high interest rates we are facing, particularly in the housing market. While experts continue to predict further rate hikes, there is still demand for real estate and other investments or purchases. Those who work in the commercial financing industry in Florida understand more than ever the challenges the industry faces.
There are some things investors, borrowers and lenders can do to be proactive and help reduce pressure on the markets. Here are some helpful tips:
- Take advantage of low variable rates that will allow you to refinance later when interest rates have stabilized
- Re-subscribe current development funding to renew stress test data
- Consider available government financing options if your plans qualify for certain programs or options
- Examine economic development resources at both the local and federal levels
- Research mezzanine financing as a potential alternative
Ultimately it’s a waiting game. Even though interest rates are so volatile, we must continue to learn how to navigate the markets and do our best to take advantage of what is available. Learn your resources, do your research, and do your best to make what’s available work for your investing needs.
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