How Higher Rates Touch Consumers, Firms, Investors
Higher rates could further depress loan demand at many small businesses, at least in the short run.
But higher rates can also benefit small business because they signal that the economy is strengthening. Once companies make more money because they have more customers, they're more inclined to expand or buy equipment even though financing is costlier.
Bella Bag, a retailer of designer handbags and other accessories based in Atlanta, is borrowing for the first time in its eight-year history. Chief financial officer Brian Froehling said the company decided to do so now because it thinks rates will rise.Steadily higher rates might give the company pause before it borrows again, Froehling said. But it's hired four staffers this year in response to growing demand. It will likely fare well even if rates rise further, he said. â¿¿ BIG BUSINESSES. Large U.S. companies have sold more than $4 trillion in bonds to investors in the past 2Â½ years, according to Dealogic, a research firm. That's more than the annual gross domestic product of every country in the world except the United States, China and Japan. The biggest sale ever was Apple's offering of $17 billion in bonds in April. As rates began rising last month, new sales slowed. Companies with top credit ratings sold only $9.5 billion in bonds last week, according to Dealogic â¿¿ 60 percent less than the average for each week through April this year. Still, companies have been collecting record profits. That means they should still be able to expand their businesses and hire more, even if borrowing costs rise. â¿¿ PENSION FUNDS. Rising rates are a relief for companies with employee pensions. Accounting rules require them to use bond rates to determine how much money to set aside so they'll be able to pay retiree benefits in the future.
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