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When Assessing Your Small Business’ Credit Needs, Focus on Your Return on Investment

running-a-business | Read Time: 3 minutes

By Anthony Ryan | Published: June 2022


Lately, when we hear about interest rates in the news, it is usually about the pace they are rising, how the Federal Reserve is using rate hikes to combat inflation, and how these factors are making everything more expensive.

For small business owners, taking the long view is always important but it is even more critical during periods like we are experiencing now. While higher rates could make securing a loan for your small business more expensive, it doesn’t mean you should wait to get funds you need in hopes of rates lowering.

If your business may need funding, there are several ways to acquire it that will provide a good return on investment (ROI). Leaning into a challenging interest rate environment can actually provide opportunities to strengthen your business’ finances.

Here are some options to reinvest in your small business and bolster your ROI.

Consider Inflation’s Impact
With inflation putting businesses and consumers alike in tighter financial positions, a short-term cash infusion may  help your small business keep cash flowing, inventory at needed levels to flourish, and your purchasing and selling power manageable.

Inflation doesn’t appear to be going away soon, so take a hard look at your short-term expenses and expected revenues to identify ebbs or gaps that could impact your business.

Acquire Real Estate
Owning real estate for your business can be a great ROI driver not only because of the equity your business builds, but also the revenue it can generate.

Small businesses that own their “home” and occupy at least 51% of the space can use the extra space to lease to other tenants, both commercial and residential, depending on how the property is zoned, to establish consistent revenue drivers that can be reinvested back into the business and increase cash flow.

Owning your business’ home can also provide tax benefits such as deducting annual interest paid on the loan and other expenses associated with owning the property.

Identify What Makes Sense for Your Business
Not all small businesses’ financial needs are the same, and neither are financing options. What works well for one business may not work as well for another.

Small business owners should consult with their lender and accounting partners to determine their cash flow and financing needs, and whether a loan makes sense for them, regardless of the rate environment, to maximize their ROI.

In addition to purchasing real estate, some popular options that small businesses should look at include:

  • Small Business Lines of Credit – Lines of credit are great for providing cash flow if your business experiences seasonal changes in working capital, needs a short-term cash infusion to cover rising costs for inventory, or has fast-moving business opportunities that you want to take advantage of.
  • Small Business Administration (SBA) Loans – SBA 7(a) Loans are a popular option due to their low cash investments, long repayment terms, and guaranteed backing by the government. This allows flexible credit requirements for borrowers that have challenges obtaining traditional bank financing. SBA 7(a) Loans can be up to $5 million and provide repayment terms of 10-25 years at modest rates.
  • Equipment Financing Loans – A great option if your small business needs or sells equipment, these loans can help finance transactions and even provide tax benefits.

No matter which direction is best for your small business in the current environment, be mindful of how your investments now can have you well-positioned for future success.

About the Author – Anthony Ryan
Anthony Ryan is Senior Vice President, Director of Retail Lending Strategy and Operations for WSFS Bank. He previously served as Senior Vice President, Director of Small Business Lending. Anthony joined WSFS in 2011, bringing with him over 30 years of Retail and Small Business Banking experience.



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