The historically low interest rates we are currently enjoying have lulled many business owners and executives into believing these lower rates are here to stay. They will be rudely awakened when their business loans that float with the market interest rates experience a dramatic increase!

Many economists believe interest rates will increase soon. Federal Reserve Chairman Alan Greenspan has been hinting at an increase in the discount rate offered by banks. Also, the market has been pushing up home mortgage rates while the bond market demands higher rates.

Rates are going to go up.

The trap for businesses is in the borrowing of money with a floating rate for long-term business needs. Businesses that require seasonal borrowing to finance inventory or accounts receivable can, over the short term, absorb higher interest rates.

However, if accounts receivable, working capital, or inventory requires long-term borrowing, then those businesses need to brace for the likelihood of higher rates.

Ask yourself:

• What will happen to my bottom line and cash flow if interest rates increase 1, 2, or 3 percent?
• Can I support a higher borrowing cost within my current cost structure? (If not, consider taking steps now to decrease borrowing before the rates increase.)

King Solomon observed, "A prudent man sees evil and hides himself; the naïve proceed and pay the penalty" (Prov. 27:12 NASB).

Most experts and indicators point to higher rates in the near future. Prudent business leaders will take steps to convert short-term debt or reduce debt if possible now rather than wait for higher rates.

In a few years we will look back and, like we did to the 1960s, wonder why we didn't lock in these low rates.

Act now or pay a future penalty!

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