As we learned in 2022, inflation can have a significant impact on the lending environment, making it more challenging for businesses to obtain financing. With rising prices and increased costs, lenders may be more hesitant to provide loans, and borrowers may struggle to meet the more stringent lending criteria. Obtaining financing during high inflationary times requires careful planning and a solid understanding of the lending landscape.
The Federal Reserve’s decision to raise interest rates is often influenced by macroeconomic indicators, such as employment data, GDP growth, and inflation rates. In recent years, the United States has experienced relatively low unemployment rates, with the average rate in 2022 hovering around 3.6%. This strong labor market has put pressure on wages, which can lead to inflationary pressures. Additionally, GDP growth has been retracting but is still positive, with a growth rate of .9% in Q4 of 2022. This growth over the past year, combined with the pandemic-related supply chain disruptions, has resulted in higher prices for goods and services, contributing to inflationary pressures. In response to these factors, the Federal Reserve raised the federal funds rate at an unprecedented pace from near-zero levels in 2021 to combat inflationary pressures and maintain price stability.
“The major negative impact to the markets has been the speed in which rates were raised – very rapidly. As interest rates rise, in particular the benchmark 10-year Treasury Rate, this generally has a downward effect on prices for assets. Lenders spent a considerable amount of time in the second half of 2022 reviewing the performance of their existing loans, and introduced “caution” in underwriting new loans.” – Leisure Financial Group
An increasing federal funds rate can have an impact on the ability of an investor to obtain a loan, although the specific effects will depend on various factors such as the lending environment, the type of loan, and the financial health of the property seeking financing. One effect of an increasing federal funds rate is higher borrowing costs. As the federal funds rate rises, the cost of borrowing for banks and other lending institutions also increases. Lenders may pass on the increased costs to borrowers by raising interest rates on loans, which can make loans more expensive for properties seeking financing.
Another potential effect is reduced lending activity. When borrowing costs are higher, borrowers may be less willing to take on debt, and lenders may become more selective in their lending decisions. This may require more strict criteria for approving loans, making it harder for investors to obtain financing. An increasing federal funds rate can also lead to increased competition for loans. Higher interest rates may encourage businesses and individuals to secure financing before rates rise further, resulting in more borrowers competing for the same pool of funds. This could make it more challenging for investors to obtain financing if they are competing with other businesses for the same funds. In light of these factors, it is important for marina investors seeking financing to work with an experienced lender who understands the unique aspects of marina financing and can help navigate the changing lending environment.
Marina investors can take several measures to improve their chances of acquiring financing from a bank. First, they should create a robust loan application, including a comprehensive business plan, financial statements, and projections showcasing the marina’s ability to generate revenue and repay the loan. Second, building a rapport with the bank can help marina investors acquire financing more efficiently. This entails establishing accounts, sustaining communication, and participating in local business events. Third, collateral can be a decisive factor in obtaining a loan. Investors should be prepared to pledge assets such as real estate or equipment to secure the loan. Last, they should anticipate due diligence, which typically involves a review of financial statements, business plans, and interviews with key personnel. By following these measures and working with an experienced lender familiar with the intricacies of marina financing, owners can increase their chances of securing financing and continue to run a thriving establishment.