1. Interest rates cuts have made rates more affordable than ever.
The Fed funds rate, now in a range of 1.5 percent to 1.75 percent, is at historically very low levels. The U.S. Federal Reserve handed businesspeople a gift in 2019: three interest rate cuts, the most rate cuts in one year since 2008.
The lower interest rates are, the more affordable it is to borrow money for starting or expanding your business or franchise. Lower rates can even mean that lenders can approve you for higher amounts than they might if rates were higher.
The Fed also noted its intention to keep an eye on the economy. If it weakens, lowering interest rates are one of the methods of helping businesses – and it intends to keep economic expansion going. All of these are signs that the direction of interest rates will be sensitive to business needs.
Adding to the mix is President Trump’s stated desire to move interest rates even lower, to 0 percent or even negative territory. While that appears unlikely, the bottom line for aspiring business owners is that interest rates are currently very affordable and have the potential of becoming even more so by the time 2019 ends.
2. The U.S. economy continues to be robust.
The U.S. economy has been robust since it fully pulled out of the Great Recession. CEOs polled by the Business Roundtable for the CEO Economic Outlook Index expect the overall
The U.S. Federal Reserve handed businesspeople a gift in 2019: three interest rate cuts, the most rate cuts in one year since 2008.
gross domestic product (GDP) to rise 2.3 percent this year. (The Business Roundtable asks CEOs to forecast company plans for sales, capital spending and hiring over the coming six months, to get a sense of the U.S. economy’s direction.)
Growth expectations do appear to be moderating somewhat, according to the Business Roundtable survey. The 2.3 percent GDP estimate is lower than the forecast given by CEOs last quarter, which stood at 2.6 percent. But 2.3 percent growth is still impressive by historical standards. Many components of the U.S. economy, such as the employment rate and job creation, are showing strength at historical highs.
More importantly, perhaps, much of the slackening quarter over quarter can be attributed to trade tensions with China and slowing global economies. Not all businesses are affected by these factors.
While it’s prudent to assess the strength of the individual business and sector when purchasing a business, the strength of the economy overall is definitely positive for aspiring business or franchise owners.
3. 401(k)s have gained in value over the year.
The stock market has done very well in 2019. The S&P 500 climbed roughly 18% from the beginning of the year to the third week of September, while the Dow Jones Industrial Average rose approximately 15%. As a result, if you have 401(k)s, Individual Retirement Accounts (IRAs) or any other funds in the stock market, they have likely appreciated markedly in value.
They may keep appreciating even more through the final day of 2019. The propensity of stocks to rise the last week in December, often termed a “Santa Claus rally,” is real. In the past 90 years, stocks have risen in 66 of the Decembers – more than 73 percent of the time. While a Santa Claus rally is not a done deal for 2019, it is a strong possibility with historical precedent.
How can climbing stock prices help you in starting a business? Qualified retirement funds such as 401(k)s and traditional IRAs can be used in financing to start or expand a business via an innovative method called Rollovers for Business Start-Up (ROBS). ROBS accesses the equity in qualified retirement accounts. In a period of increased value in those accounts, it can be a very attractive financing method.
Tailored Funding Options for You
It’s not uncommon for aspiring business owners to need funding to purchase a business. But many existing businesses or franchises require down payments of from 20 to 30 percent. Lenders also frequent require extensive collateral behind the loan, so prospective owners may need to collateralize their homes.
In addition, the prospective owner needs proof of excellent credit history and other requirements. All of the standards and requirements make it difficult to be approved for a loan. Even loans from the U.S. Small Business Administration (SBA), which was set up to help small business owners, can be very difficult to get. The SBA guarantees loans rather than makes them, so that lenders are more inclined to grant small business loan applications.
Many components of the U.S. economy, such as the employment rate and job creation, are showing strength at historical highs.
SBA loans have multiple advantages for small business owners, including low interest rates and better terms. But because of these advantages, competition is sharp. Up to 90 percent of SBA loan applications are denied.
In addition to the difficulty of just getting funding, funding via loans can have negative effects on your business going forward. Loans, of course, are debts that need to be repaid. Paying off a loan every month can sap the cash flow – or even mean you won’t have funds to expand when you need it. That’s one of the reasons that 33 percent of business owners think that lack of capital and cash flow are the biggest company challenge, according to the 2019 Small Business Trends.
Tapping the equity in 401(k) or other qualified retirement plans can offer a solution to difficult-to-get loans, providing aspiring business owners with the funds to start or expand a business. ROBS can also be the solution to the challenge of monthly loan repaying tying up your cash flow.
In addition, ROBs is flexible: it can be used alone, as a down payment for SBA loans or other loans, or be combined with other funding sources.
4. Holiday sales and deals.
Let’s face it: if there’s one activity that characterizes the holiday season, it’s that money changes hands; frequently and abundantly. That can help your business in several ways.
First, it can bring in revenue to your fledging business. Between Thanksgiving and New Year’s, people shop as they do in no other period of the year.
Buying capital equipment at 25% off or more can help your profit margins from the very beginning.
Aggressive shoppers can be easily persuaded to buy some products from you, even if your business has just begun to be up and running. Even people who may not be in shopping mode at other times of the year are revenue generators in the holiday period. You can tap both those groups of people in generating sales.
You can also generate revenue by timing the launch of your business to the holidays. Holidays provide opportunities for eye-catching sales campaigns, special offers to draw customers in, and multiple other festive marketing efforts. If you buy your business by the end of the year, you can have noticeable sales campaigns tied to the holidays through New Year’s Day.
If you wait until the year is over, though, your business could be starting in January or February. These months – in sharp contrast to the holiday period – are not great for revenue generation overall. In many areas of the country, the weather is cold. People tend to suffer post-holiday letdown in terms of shopping or even being interested in shopping. It’s best to start your business when sales are brisk.
Second, the holidays are frequently characterized by great deals which you can use to capitalize on deals for your business. If you need to make capital expenditures on office equipment and supplies for your business, holiday sales like Black Friday and Cyber Monday can ensure that you start your business on a financially prudent footing. Buying capital equipment at 25 percent off or more can help your profit margins from the very beginning.
It’s not only the leadup to the holidays that provide deals, of course. Immediately after Christmas, many items needed in offices and other business sites will see a steep markdown. It’s to your advantage to purchase during times of deep discounts — like the last week of 2019.
Let Guidant Help You Achieve Your Dreams…This Year
If you’re hesitant to start a business now because of funding concerns, we’re here for you! Guidant Financial is here to help you fully understand your funding options and find the best fit for your unique needs. Call us at 888-472-4455 or contact us today to get your business off the ground in 2019.