What Rising Interest Rates Mean for You and Your Bank (hint: get ready to pay more)

Mike Brew

Last time updated: December 17, 2024

The Federal Reserve recently raised the benchmark interest rate by a quarter of a percentage point, the latest in a series of hikes. The benchmark rate range is now 4.75-5%. This move is intended to slow down inflation.

What does that mean for staffing firms that fund with a bank?

If you are currently funding with a bank, it is likely that with the looming increases, you will be required to pay more for your money in the near future.

As banks increase their rates, you will have to figure out how to offset the increased cost of borrowing. Will you be able to pass on those increased fees to your customers? Is that sustainable? The other option if you are not increasing your fees is to grow enough business to cover the new costs. The question is – how are you going to grow without more capital to invest in resources?

Other implicit costs of banking to consider

While taking out a low interest line of credit may seem like the cheapest way to finance your staffing firm on paper, there are several factors to consider besides the looming rate increase. You must take in to account the additional scrutiny, limited liquid capital, harsh credit limits and unexpected fees you often encounter at a bank. These costs can hamstring your business and make it hard to grow – take our client Denise from an IT Staffing company:

“We couldn’t manage our payroll anymore, which is obviously a bad problem to have. Our bank’s requirements were so stringent, and they wouldn’t increase our line of credit. It really got us to the point where we would have to close our doors. If you grow 1%, but you’re short for payroll, your business is over, and the bank doesn’t care. You can’t grow without funding.”

Payroll funding… the better option

The days of banks offering competitive interests rates are numbered, so now is the time to explore your funding options.

With payroll funding companies like Advance Partners, not only do you get flexible upfront funding, you also gain access to an arsenal of administrative and strategic support services tailored to your needs. With all of these benefits at comparable cost to funding with a bank, it’s time to step back and ask yourself whether traditional bank loans still make sense for your staffing.