A Wealth of Common Sense: Talk Your Book: Startups In a Crisis
Small businesses are in trouble. That’s largely due to rising interest rates. Higher interest rates have made it costlier to borrow. And investors are less interested in stocks, which has caused the initial public offering (IPO) market to sputter out.
Now, there’s added risk to many startup companies from the banking system. That’s because small and regional banks tend to be the biggest lenders to startups.
Small businesses play a big role in the economy. They provide much of the newly-created jobs. A handful will go on to become the major employers of the next generation.
But all big companies today started out as a small company. Keeping them going during a financial crisis can have huge implications for the economy for years to come.
For these small companies, and potentially for small investors too, cash management matters. Keeping cash somewhere where it won’t be at risk of a bank failure is critical. The ability to benefit from rising interest rates matters too.
That’s why some companies are moving their cash to government bonds. The U.S. Treasury has bonds with durations from 30 days to 30 years.
Plus, thanks to rising interest rates, one-year Treasury bills have gone from paying 0.1 percent to over 4 percent right now. That’s a big jump of about 46 times the prior income. If interest rates continue to stay high, investors may continue to move to Treasury bonds.