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When it comes to interest rates, watching them go up can be painful. Not knowing what they're going to do either way, though, can be even worse.
Such is the case for those who have been trying to make sense of the Fed's recent decision-making process, which has included seven years of not doing anything, then one brief moment of action followed by more indecision.
While much of the attention for rate impacts focuses on big multinational companies and Wall Street banks, small businesses face acute affects as well. Rising rates push up the U.S. dollar, giving owners more domestic purchasing power, while costlier borrowing terms can put a crimp on activity.
Mostly, though, it's the uncertainty that bothers small business.
"It's been like waiting on a curveball," said Tom Wornham, CEO at Private Bancorp of America, a San Diego-based community bank. "All of us have been managing our balance sheets, anticipating that there would be some type of an interest rate hike."
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For outfits like Wornham's, the calculus is a little different than on Wall Street, where banks count on higher rates and a bigger spread between yields on securities of various durations. Big banks borrow short and lend long, hoping to capture the difference in costs.
Smaller institutions such as Private Bancorp, or PBAM, rely on strong customer relationships, so they look less to the Fed for rate moves and more toward simple stability. Wornham said he was at a dinner Monday with local business leaders, almost all of whom were "not concerned about the rate raise," but rather about a stable economy and what impact another rush of foreign cash to U.S. real estate would do to the market.
"I've been doing this for three decades," he said. "If there's one thing I've learned, anyone who can tell you where rates are going is either a prophet or a fool. Either way, you don't want to be sitting next to them in an airplane."
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