Small Business Tactics to Manage Rising Interest Rates

Excerpt

Although the impact of rising interest rates varies by business, it’s usually preferable for most small businesses to have low interest rates. It’s cheaper to borrow money, or at least, with stable interest rates, you can plan for and repay loans you committed to.

Problems can appear however, when interest rates climb faster than anyone predicts. On-going rising interest rates can cause financial stress, where businesses have borrowed large sums of money in the expectation interest rates would remain the same for a little longer.

Here are a few trends and tactics rising interest rates have for small businesses:

Customers spend less

Probably the broadest impact from rising interest rates is that mortgage rates and business loans goes up. Your customers will be allocating more of their weekly wage to repaying interest, with the consequence of less disposable income to spend. If you are in an industry that is deemed discretionary by the consumer, you could be the first purchase to face the chop.

Other implications include:

• Higher interest rates make it more attractive for consumers with spare cash to save (they get a higher return on deposits) rather than spend.
• If your customers use financing (credit cards or pay later products), they may be reluctant to buy as much or as fast, as this cost of credit is also rising.
• The whole economy can slow. Siphoning off even a small amount of spending can starve other industries.

Harder to access credit

While higher business loan rates make long-term debt more expensive, short-term debt can also be harder to obtain. Lenders that require physical assets to secure finance will most likely want tighter requirements, such as more equity or personal guarantees. This increases the risk to you as the borrower…