Feeling the Pinch? Interest Rates and Plant Expansion

Rising interest rates are making waves across every industry – and propane is no exception. If you’re thinking about upgrading or building a new bulk plant, you’ve likely felt the pressure of tighter loan terms and higher monthly payments. Financing options today look very different than they did even two years ago. That’s why it’s more important than ever to study how these changes could impact your bottom line.

Whether you’re planning to expand capacity, add storage, or relocate your plant for better delivery access, understanding the effect of interest rates on project financing can help you avoid unpleasant surprises and make smarter decisions.

Why Bulk Plant Projects Are So Sensitive to Interest Rates
Bulk plant development is capital-heavy. It often requires hundreds of thousands – or even millions – of dollars in up-front investment. Since most businesses don’t have that kind of plentiful cash on hand, they rely on loans to finance the build. When interest rates rise, those loan costs rise too.

A one-point jump in interest can add thousands of dollars in long-term costs over the life of the loan. For many propane operators, that makes a new build feel just out of reach – or it forces them to scale back on the desired size or features to stay within budget.

Knowing What Lenders Look for Now
Banks and financial institutions are taking fewer risks. In the past, propane companies could secure bulk plant financing with strong cash flow and stable customer demand. Today, lenders may want more detailed records, longer customer contracts, or higher down payments.

If you’re not already tracking your monthly financial performance, this is a good time to start. Clean, consistent books make you look like a lower-risk borrower and can help you negotiate better terms.

Considering Loans – Fixed or Adjustable Rate?
In a rising rate environment, many propane retailers lean toward fixed-rate loans. These offer greater predictability and protect you if rates go up further. Adjustable-rate loans may offer lower payments up front, but they come with more risk down the road if the market keeps shifting.

The right choice depends on your risk tolerance and how long you plan to hold the loan. If you expect rates to drop within a few years, a short-term adjustable loan could still work. But if you want long-term cost control, locking in a fixed rate may give you more peace of mind.

Exploring Creative Financing Options
Some propane companies are exploring lease-to-own structures or partnering with co-op fuel suppliers to reduce their up-front costs. Others are pooling resources with nearby companies to build shared infrastructure. These creative approaches won’t work for everyone, but they show how flexible thinking can still move projects forward even when money gets tighter.

Before you move forward with any nontraditional route, be sure to consult both a financial advisor and your insurance agent to fully understand the legal, tax, and liability implications of such a major decision.

Growing in Phases
Waiting for rates to fall might seem smart, but if demand in your area is growing or your current plant is slowing down your business, that delay could cost more than the interest. Higher transportation costs, driver overtime, and slower turnaround times all eat into profit. If your current setup is limiting growth, upgrading may still be worth the investment.

Sometimes the best path is starting small – adding a second tank or building on the edge of your current property – so you can eliminate costs while preparing for future growth. Expanding in phases is often a more reliable route to take, as it carries less risk.

Succeeding in a Tighter Credit Market
Higher interest rates don’t mean you have to put your goals on hold. They mean you need a sharper plan. That starts with knowing your business numbers, talking to multiple lenders, and thinking creatively about how to structure deals. You’ll also want to revisit your plant layout and location plan to make sure every dollar spent brings back real value over time.

Planning With Purpose Pays Off
The propane industry will always depend on smart infrastructure. Bulk plants are the beating heart of supply and delivery. While financing those projects may now require more caution, clear planning and good financial habits can help you move forward confidently.

Looking Ahead
The way you approach financing today could shape your propane business for the next ten to twenty years. Every rate point, every repayment schedule, every lender condition matters more than it used to. With the right preparation, you can still invest in bulk plant improvements that grow your capacity, improve your efficiency, and secure your position in a competitive market.