ANCHOR JAKE: Let's bring in Jay Aldebert, the Chief Growth Officer of International Services, to talk a little bit more about it. Jay, fascinating and important topic. Thank you for taking the time to chat with me.
JAY ALDEBERT: Not a problem. Not as exciting as those other events you're going to talk about, but definitely exciting.
ANCHOR: Not with that attitude, sir. Come on. Listen, this is important. Important stuff is exciting. For small business owners in Chicago, where are they going to feel the impact of this rate hike first?
JAY: Variable debt. Variable debt. What is that? That's credit cards. That's lines of credit. That is any type of SBA loans. A lot of the SBA loans, some of them have fixed rates, some of them have variable rates. So they're going to see it from a cash flow standpoint. This increase overall of a quarter point, it's kind of a warning shot. It's really not a damaging indicator. To give you an idea, on credit cards, the increase of this quarter point, let's say if you had a ten thousand dollar balance, it's going to equate to about a dollar more a month on your payments. It's not a dramatic increase. But it is a warning shot based off of what the future holds, definitely.
ANCHOR: So Jay, how much more difficult does this make it to finance inventory or equipment or an expansion?
JAY: I think there's a couple of different factors that we have to take into consideration. This on its own itself is not devastating. We have the tariff issue. That's a big issue. We have the rising costs of labor. That's an issue. So you bring this in, it kind of just compounds the situation. If there is additional increases, right, which there's two meetings scheduled between now and the end of the year, one in late October, one in early December, as those meetings go on, if there is additional increases, you're going to see working capital being drained. Working capital right now is being heavily drained in a lot of different areas, unless you're able to pass those costs on from the tariffs. So this impact right now, again warning shot, can be quite devastating as time goes on, and as the way this increase versus inflation goes gives an indicator which way they're going to go.
ANCHOR: Even to that point of expanding on that, are you seeing, do you expect to see businesses delaying hiring or major investment decisions because of these higher borrowing costs?
JAY: Especially the investment decisions. Just because it went up a quarter point in terms of the Fed, when you get into vehicles, when you get into equipment, construction equipment let's say, or trucks, heavy equipment like that, plus any type of machinery that you're going to buy, that's where you're going to start seeing these decisions have to be made based on debt service. They have to be made based on liquidity. They have to be very disciplined decisions based off of what the timing of those purchases are. In terms of hiring, working capital is always a big issue, which essentially, cash is king, I'm sure you've heard. And so looking at what could be coming down the pipe probably is going to delay a lot of decisions for business owners based on those big investments and the hiring process for sure.
ANCHOR: And to that point, you mentioned a dollar a month on a ten thousand dollar credit line. For businesses that are relying heavily on those credit lines, with these Fed rate hikes, does it give them pause and say, to your point you mentioned cash is king, does it ever give them pause and make them go, maybe we've got to rethink how we're going to do this because it seems like things are moving in one direction when we wish they were moving in another?
JAY: I would, as somebody that helps small and medium-sized businesses, I would like that to be the way. But a lot of times when you look at how our small and medium-sized businesses operate in this country, it's very heavy focused on revenue and what's going to help them generate more revenue. They usually take the attitude of we'll figure it out. So I think it will give them pause. Even this quarter point itself, usually interest rates are considered to be almost punishing in terms of not having the liquidity to buy. This small amount of increase overall is not going to give them pause. I think they're going to make those decisions anyways and continue to chase the revenue dollars.
ANCHOR: I want to get your expertise. You brought up that you are sort of a person who helps these small and medium-sized businesses. Obviously, the world is continuously evolving and changing, and these businesses are evolving and changing. How has your advice evolved and changed? What's the difference between what you're telling small and medium-sized businesses today versus maybe what you were telling them ten, fifteen, twenty years ago?
JAY: It's interesting. Part of the answer would be nothing, other than nothing really changes. We're a firm that believes in profit by design, and profit by design essentially, based on a quick and dirty math, would be, if you want to make ten cents on every dollar, you got to structure your company to spend ninety cents. That doesn't change. As volume goes up it doesn't change. During different economic cycles it doesn't change. In terms of different areas of the economy changing, the aspect of that doesn't change. The problems just become different, and how fast you have to react. The tariffs, obviously, figuring out how you can reprice any bids you have out there, was the advice we would give, and that's on an immediate basis. How you can look at passing those costs onto the consumer, and I know consumers are not going to want to hear that, but small medium-sized business is my arena. So being able to pass those costs, and if they can't, then our focus is really looking at how do we reduce costs in other areas to absorb those. Working capital is always going to be the same. I've been doing this for twenty six years. That is always one of the biggest areas that trips up businesses, and debt service. So there's not much change. It's just the ingredients of what we have to overcome change, but the lesson is not.
ANCHOR: Jake, up until this moment, I feel like I've been very much kind of focusing on the negative impact of all of this rate hike. Is there a silver lining? Is there anyone for whom this rate hike is actually a good thing?
JAY: So if we back up and kind of go, why it happened. There is a silver lining at the end of this. But I'm just going to say, why did it happen? Well, inflation is high. People hear that headline, and they go, okay, well it's at three percent and the Fed wants it to be two percent. So we can understand why they're doing that. But the real cause, yes, there is cause from the price of fuel, the price of energy in general that obviously causes an inflation increase. But you also have the aspects of the tariffs. Those two things have an increase on inflation. But at the end of the story, what it really is happening is America is still spending like they're still spending. There's a one percent increase overall. And what's happening on the other side of the equation is you see savings, which are obviously monitored, they're dropping. Savings are dropping right across the board. And then last but not least, you see credit card increase. Like in the second quarter overall, I think it was a twenty one billion dollar increase in second quarter in terms of credit card debt. It's up to about one point two six trillion I think is the number right now. So although we're spending, the financial health of the household isn't that strong. And what something like this does is it's kind of a supplementation. If the cost of borrowing or the cost of buying essentially becomes higher, it slows the demand. And when it slows the demand, the result is that we see prices lowering. So the silver lining in all this, with these increases, although it obviously scares people and they say, I'm going to have to make higher payments, what it's doing is it's slowing the spending to push down the average price of goods that they consume, both discretionary and obviously stable.
ANCHOR: Jay, we got just about a minute left. What would you tell a business right now who is deciding if now's the right time to expand, if now's the right time to take that next step and decide what the next chapter of their business's journey is going to be?
JAY: Well, the answer immediately would be call our firm, but I'll sidestep that for a second. The answer would be put themselves in a position where they understand where they sit financially. A lot of people understand sales, they'll understand profit. Cash flow itself, there's lots of definitions for that. So being able to understand what is your debt load right now, what is the working capital you have in your business, and take inventory of all that, and be able to understand what is this decision going to result in in terms of my cash flow. Instead of looking and saying, I'll just have to sell my way out of this, take inventory, reconcile, figure out really where you stand, and then make that decision based off of from an informed position.
ANCHOR: Fantastic. Amazing information. Jay Aldebert, Chief Growth Officer of International Services. Ten seconds to let people know where they can find more information.
JAY: They can go to jayaldebert.com. It's on the screen, I'm assuming. It gives a ton of information about our firm.
ANCHOR: Fantastic. Truly valuable information, Jay. Thank you for checking in with us, and I'm sure we'll be talking again soon, my friend.
JAY: Thank you, Jake. All right, take care.