By Ken Altena, Partner, Billboard Loans LLC.

Get ready for more interest rate increases this year, and possibly next, based on the Federal Reserve’s new median forecast, which signals another 1.25%  this year to  4.5%  and even more in 2023.  Borrowers are fearful this will not be the last of the rate increases as inflation continues at the highest level in 40 years, and loan rates have already gone up across all loan types including home mortgages, commercial loans, and credit cards.

However, keep something in perspective.  This won’t be forever.  Rates go up and rates come down.  The economy was booming, especially the real estate sector, as the Fed Funds rate ran up from 1% to over 5%  from mid-2004 to mid-2006.  Then, of course, it was the great recession with the Fed Funds rates free falling to near 0% in 2008.  Rates were lowered, but the economy took a massive hit as did most people’s retirement savings.

The period from 2009 to 2015 is what is really unprecedented with the Fed Funds rate.  In the last 70 years it never stayed so stable and so low for so long.  The Fed Funds rate was bouncing around well above 4% for most of the 70’s, 80’s, and 90’s.

In 2016, the Federal Reserve started raising the rate to slow the economy, and it got all the way up to 2.5%.. Then Covid-19 changed everything.  Once again, the Fed Funds rate was dropped to near 0%.

Now the Fed Funds rate is above 3% for the first time since 2008.  Inflation is the enemy.  Did you know in 2012 the Federal Reserve set a policy target for inflation of 2%?  Coming back from the Covid-19 impacts on the economy has been messy for the Federal Reserve.  Hopefully, the Federal Reserve can get inflation checked, because interest rates won’t go down until inflation falls.

Until then, it is a good practice to borrow wisely. Pay down what you can.  Understand your interest rates. Make sure any new borrowing is supported with sufficient cash flow to cover your debt service using an interest rate at least 2% higher than your current rate.  Good projects will still warrant borrowing – you just need to leave a cushion to get past the worst  of the rates. They are going higher, but remember, they will come down.

Billboard Loans makes senior loans of $50,000 to $1 million and equity investments of $50,000 to $3 million in out of home advertising companies.  For more information visit www.billboardloans.com, email kenaltena@billboardloans.com or call Ken at 206-638-8478.

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