This story is part of a series of 2025 outlooks from PNC Corporate and Institutional Banking.

Amid a sustained period of elevated interest rates, many mid-sized companies have postponed making significant investments that would help them grow their businesses throughout the last few years. But that may be about to change in 2025, as the Federal Reserve has begun to cut interest rates and is likely to continue to do so in the coming months.

The lower rate environment will have an impact on strategic business decisions in three important ways, according to Mike Willetts, head of Commercial Banking for PNC Bank:

  1. Capex spending – As rates start to come down, many mid-sized businesses are likely to increase their capex spend, given that the cost of capital will be less expensive. Technology is a logical area of focus for capex investment, as it can play a key role in streamlining operations, whether in the form of automation equipment or digital technology for managing processes. Strategic investment in technology is also critical for businesses to guard against fraud, which continues to be a growing challenge for companies across all sectors.
  2. Mergers, acquisitions, and ownership transfers – A lower rate environment is also likely to lead to an uptick in merger and acquisition (M&A) activity, as a significant portion of mid-sized businesses are likely to be looking to make some sort of change in ownership, not just in 2025, but generally over the next few years.
  3. Liquidity management – A change in interest rates presents a clear opportunity for businesses to examine their liquidity position and evaluate ways to maximize, including potentially updating their banking relationships.

While lower rates will be impactful, they aren’t the only dynamic that will influence business strategy in 2025. “There are some other big headwinds in play, including the question of whether the economy will ultimately go into a recession, and of course it remains to be seen what impacts will result from the change in administration,” Willetts said. “Inflation also continues to be a factor, as companies contend with increased prices and a higher cost of doing business, and this includes the cost of hiring and retaining employees.”

In Willetts’ view, as businesses wait for the picture to become clearer, it’s important that they keep an open dialogue with their bankers. “We continue to navigate a very uncertain environment, and it can be particularly challenging for businesses in the mid-sized segment to identify the right path forward. There are a lot of options on the table for mid-sized businesses looking to achieve greater scale. Banking teams can provide valuable insight and support to business leaders as they weigh strategic decisions.”

 

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PNC Commercial Banking can offer insight into technologies, products, and processes that can help businesses seize opportunities, today and in the future. For more information, reach out to your PNC Relationship Manager, or contact us.

 

PNC 2025 Outlooks:

Pressures and Opportunities for the Healthcare Industry

Uncertainty and Optimism for Commercial Real Estate

Consumer Health Shapes Food and Beverage Industry Demand