Startup Loans USA CEO Craig Johnson Shares Insights for Prospective Borrowers
Updated November 7, 2024
The Federal Reserve Board’s decision to cut its key interest rate by a quarter-point, in addition to the half-point reduction in September, was a welcome development for prospective and existing franchise owners seeking funding. The Fed’s move reduces its benchmark rate to the 4.5%-4.75% range, down from a high of 5.3% prior to the September meeting. “These rate cuts were the first in four years, and the likelihood of another reduction this year is cause for optimism among those who need financing to either invest in a franchise or obtain working capital for an existing franchise,” says Craig Johnson, CEO of Startup Loans USA.
The Federal Open Market Committee in September signaled an additional half percentage point in cuts by the end of this year, and another full percentage point in 2025. The next Federal Reserve meeting, the last one of the year, is Dec. 17-18 and will include a summary of economic projections, which will provide some indication of the Fed’s projected rate changes for the first quarter of 2025 and beyond. Prior to September’s meeting, the last time the Fed cut rates was in March 2020 to aid the economy during the Coronavirus pandemic.
While existing fixed-rate loans will retain their current APR and factor rates, the Fed’s rate cuts will translate into lower borrowing costs for variable-rate loans, new loans and lines of credit. “Lower interest rates can not only make borrowing costs lower for businesses, but also make it easier to be approved for loans. With a monthly or weekly payment that’s lower, the loan is less risky for the borrower and lender than a loan with a higher interest rate,” Johnson explains. Another advantage of lower interest rates is that they can enable businesses to take on larger loans while keeping the same payments.
Franchise Funding Insights
As CEO of Startup Loans USA, Johnson leads a team of financial consultants with more than three decades of combined experience specializing in unsecured loans up to $550,000, including franchise loans and business lines of credit, with initial approvals typically in two to three business days, and money in hand within two to three weeks.
Unsecured loans offer advantages for borrowers who don’t want to tie up assets as collateral to secure their loans. Because there’s no collateral required, there’s less risk to the borrower in case of default, and loan approvals typically take less time because there’s no need for collateral assessment. The disadvantages of unsecured loans include possible higher interest rates and qualifications requirements including credit scores, verifiable income and established credit history.
Johnson started his first company in 2006 and says he admires entrepreneurs and finds satisfaction in tailoring financing solutions to meet their goals of franchise ownership. “Business financing is not one-size-fits all, and especially in this economic climate, it’s as important as ever for prospective franchise owners to do their homework in researching funding options and seek counsel from trusted sources,” Johnson says.
Wait or Seek Franchise Funding Now?
With the possibility of an additional rate cut this year, would-be borrowers must weigh several factors in deciding whether to seek franchise funding now or to wait. “The decision depends on their specific financial situation. While lower interest rates generally mean cheaper borrowing costs, waiting might possibly delay important investments if the current rates are already favorable and the business has a pressing need for capital,” Johnson says.
Some factors a prospective borrower should consider:
- Waiting for interest rates to drop further could result in lower borrowing costs, enabling a greater investment with the same loan amount.
- If a prospective or existing franchise owner has a time-sensitive opportunity requiring funding, it might make more sense to borrow now to take advantage of the opportunity. If a franchise has an immediate need for working capital or operational expenses, waiting for interest rates to drop could impede daily operations.
- Waiting might be more advantageous for a borrower seeking longer loan terms, which might be more sensitive to interest rate fluctuations.
- A strong credit score might allow for better loan terms even when interest rates are higher.
- Predicting exactly when and how much rates will drop is not easy; waiting too long could result in missed opportunities for the would-be borrower, or even higher rates if the market changes unexpectedly.
For more information about Startup Loans USA, visit https://startuploansusa.com/.
