Inflation has increased even more than expected. According to the U.S. Bureau of Labor Statistics, the consumer price index, which measures the cost of everyday goods and services, rose 9.1% in June over the same month last year. The increase is the sharpest since November 1981.
Already weary after two years of COVID-19 lockdowns and restrictions, hiring difficulties, rising interest rates and supply chain snafus, small businesses now must deal with higher prices for goods and determine how much of the burden to pass on to their customers.
“Like most changes to the economy, rising interest rates produce ripples that can impact business owners’ bottom lines,” said Chi Eze, vice president, small business banker manager for Bank of America in Owings Mills. “Higher interest rates lead to more expensive loan payments, so it’s important for business owners to carefully consider their long-term cash flow and budget needs when considering funding sources.”
Hasan Mannan, business banking market manager at JPMorgan Chase & Co., said that a number of factors affect small businesses and that it is important to look at the overall picture.
“The cost of doing business, to be honest with you, has just become more expensive and it is starting to put a strain into the bottom line of even the most profitable, successfully run businesses,” he said.
In a Bank of America survey of small business owners conducted in March and April, nearly 90% indicated inflation was a top challenge.
“I think what is happening in the rate market is it is really causing business owners and our clients to take a pause and really think through and honestly analyze in a better way what they plan to use capital for,” said Jason Weisberg, senior vice president and business banking team leader for Greater Baltimore at M&T Bank.
Area banks are helping their small business customers in a number of ways in the higher-rate environment.
“At M&T, our philosophy is really around relationship banking and looking at longer-term goals,” Weisberg said. “As we are meeting with clients, one of the No. 1 things we talk about and we hear about right now is around the higher-rate inflation.”
Weisberg said M&T works to understand the impact of higher rates on clients.
“Every business is unique in where they are in their life cycle,” he said.
Bank of America’s Eze said the bank provides small business clients with advice, tools and resources to navigate challenging markets.
“Our small business specialists provide guidance specific to business owners’ unique goals and priorities,” she said.
Bank of America recently launched Start a Business Center, a digital resource that offers small business clients and aspiring business owners business plan templates and information on business legal structures, marketing strategies and financing options, among other topics.
JPMorgan Chase & Co. continues to open branches not only as a place to handle deposits and withdrawals but also as a resource center, Mannan said.
“If you are a small business owner and … you just don’t know what is available to you, you are welcome to come to one of the branches and we will sit there and walk you through all of the opportunities and choices you may have,” Mannan said.
When discussing inflation, banks look beyond the short-term impacts to help small business clients prepare for the long term.
Weisberg said M&T works with clients to evaluate their long-term goals. He posed the situation of a business that faces a lease renewal and a large rent increase.
“It may be a great time to evaluate their longer-term plans and potentially buying a property to help fix in some of their real estate or operational costs, such as having space to run their business,” he said. “We can definitely help evaluate their finances and understand their longer-term goals and provide capital for what that project may be.”
Bank of America’s Eze said banks can help business owners by providing tools that make visualizing and managing key aspects of their business as simple as possible, as well as credit options to help with financing needs. Small business specialists can also provide advice to help small business owners handle the impact of inflation, from business plan reviews to customer loyalty strategies to identifying potential revenue streams.
When looking at the long term, JPMorgan Chase’s Mannan said he wants to explore how well a business is equipped to take advantage of the market once interest rates subside.
“We are seeing more conversations around mergers and acquisitions and how do companies become more efficient,” he said. “Should they do an asset contribution and increase their product output? Things of that nature are the conversations that you need to start having now because planning does take some time.”
Mannan emphasized that small business owners must understand what is happening in the global, national and local realms and that they speak to experts.
“It will take some time to plan, so my perspective is, start thinking through what you have set up for the next 12 to 16 months and then how well are you equipped to take that advantage once the market turns,” he said.