As interest rates rise, lending gets more fraught for businesses and banks

Even though the Federal Reserve held rates steady at this week’s meeting, it’s pretty clear that rates will rise soon enough.

Everyone knows it — especially lenders and small business owners.

Tiffany Turner is the CEO of Adrift Hospitality, which owns several hotels along the coast of Washington and Oregon. She has a few improvements in mind, including updating the fireplaces in each room and offering more food and drinks.

“It’s not very exciting,” Turner said, “but one of [the hotels] needs a new roof.”

Turner said those upgrades would probably cost somewhere around $300,000. The roof alone could cost just under $100,000.

But right now, she’s not sure if she wants to finance that with a new loan at today’s interest rates.

“We have a lot of equity in the building,” she said. “So, ideally, we’d pull some of that equity out, and then use that. But again, if the cost of borrowing is too expensive, we won’t do that.”

That kind of hesitancy around borrowing has started to weigh on loan demand at First National Bank Colorado.

“We’ve definitely seen a slowdown in the pipeline of new business to be had, and I think it is certainly rate sensitive,” said Quentin Leighty, the bank’s CFO.

Leighty said that his bank’s customers aren’t necessarily struggling — they just aren’t as willing to take a gamble on a new loan.

“Uncertainty always does that,” he said. “When you’ve got an election coming up, you’ve got rates that are starting to move up a little bit, there’s just enough uncertainty that that doesn’t lead to a lot of risk-taking or expansion projects.”

Recent surveys of loan officers from the Federal Reserve have found that some banks are also being more cautious about lending.

“Yeah, I’ve gone after a bank loan, only to be denied or turned down,” said Kyle LaFond, the founder of Natural Contract Manufacturing, a company in Madison, Wisconsin that makes shaving creams, soaps, and other grooming products.

LaFond has been trying to raise money to purchase manufacturing equipment, including bottle-filling machines and storage tanks. And this year, he said he has had trouble securing a bank loan.

“The bankers I’ve been working with have been very transparent in sharing with me that a lot of times, it’s not necessarily about my business, but it’s about the larger environment,” LaFond said. “And that could be them just giving me lip service as well — I understand that. But yeah, it is tough.”

Instead LaFond says he’s been borrowing money from investors and other friends of the company.

“They set the interest rate at 8.5-10.5% and give us a certain time to pay that back,” he said.

While that’s not exactly cheap, LaFond said it still lets him get the financing he needs.