According to the first-quarter Private Capital Access Index report, the recently increased federal interest rate of .25% is restricting hiring and negatively affecting profitability in businesses across the US.
The Private Capital Access Index report is a quarterly report produced by Pepperdine University’s Graziadio School of Business and Management, supported by Dun & Bradstreet.
Profitability for mid-sized businesses, or those between $5 and $100 million annual revenue, has fallen six points in Q1 2017 compared to Q4 2016, at 74%. On top of this adverse impact, 27% of these businesses cited the financing environment as restricting their capacity to hire new employees, a seven-point increase from the previous quarter.
“While low interest rates in recent years have helped businesses stabilize, this quarter’s results suggest that the current rate hikes may negatively impact cash flow and therefore soften their ability to hire throughout 2017,” said the Director of Pepperdine Private Capital Markets Project, Craig R. Everett, Ph.D.
Interestingly, this decrease in the hiring and profitability of mid-sized businesses has enabled small businesses, or those with annual revenues under $5 million, a chance to thrive. 53% of small businesses have reported profitability, three points higher than last year’s Q1.
However, 22% of these small businesses reported their primary reason for seeking finance in the next six months as “working capital fluctuations”, with an 8 point drop in those seeking financing for growth and expansion when compared to Q1 2016.