How would an interest rate reduction in September affect your search?
August 07, 2024
by a searcher from Curtin University of Technology in San Francisco, CA, USA
How do you see the potential interest rate reduction in Sep affecting your Search or Search Fund?
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Also keep in mind if you are using a product like a conventional bank loan or SBA loan on a 5 to 10 year term / amortization, the interest rate does not have as much of an impact as it would on a 30-year mortgage because you are amortizing the debt so much quicker.
Now, if the deal works at today's interest rates and interest rates do move down and you have a variable rate loan (the majority of the SBA 7A market as an example is variable rates), then you can ride interest rates down and would benefit from them going down. But do not ever bet on short-term changes in interest rates. My entire career I have seen markets and interest rates change on a dime, so your focus should always be on the right deal.
Lastly, some SBA lenders offer fixed rates, and we work with some that do. It is an interesting time right now to decide whether to take a fixed rate or take the variable rate option. Depending how quickly interest rates move down potentially, there could be a fair argument in taking a variable rate over a fixed rate. If you have additional questions on interest rates you can reach me here or directly at redacted
from University of Toronto in Toronto, ON, Canada
In any case, the price of the business or valuation would naturally adjust to interest rates so it’s doesn’t really affect the math on ROI since your discount rate will normally always be higher than current rates in all cases. If you really worried about rates then crank up your discount rate and err on the side of caution if ever rates go up again which is highly unlikely atm.
If you make money at 7.2%, you will defiantly make money at 7.1%.