Rising Interest Rates and Your Small Business

Rising interest rates have been a hot topic in Canadian news ever since the Bank of Canada announced a benchmark interest rate rise; the first in seven years. Thanks to a positive economic outlook at home and abroad, more interest rate rises are expected in the coming months. Is your small business one of the many likely to be affected?

According to Stats Canada’s most recent Key Small Business Statistics, 51.3 per cent of small and medium enterprises sought external funding in 2016. This amounted to over $53 billion in financing. This debt load represents a looming threat to many entrepreneurs and their growth plans.

Fortunately, there are several positive steps you can take to insulate your business from a higher interest rate environment.

Adjust Your Business Plan

An interest rate increase means loans, financing, or debt consolidation will cost more. Funds you may have earmarked for growing your business can all too easily get caught up in debt repayments. Revisit your business plan and account for the current financial landscape, as well as possible future interest rate increases. If you are at the planning stage and looking to apply for a small business loan, it’s advisable to lock down a rate sooner rather than later.

No matter what stage you are at in the business planning process, Small Business BC’s Business Plan Services can help you create or revisit your business plan. Secure a one-on-one consult with one of our expert advisors today.

Evaluate Your Ratios

It’s always a good time to examine your existing levels of debt and your debt ratios. If you can afford to take down your debt levels now, it’s a prudent move to do so. Business Development Bank of Canada offers a number of helpful calculators to determine your debt-to-asset ratio, among several other metrics.

Lock in a Rate

For years, variable interest rate loans have provided great value for those who have availed of them. However, now is the time to approach lenders and try to lock in a preferential fixed term rate that will give you several years of financial certainty and breathing room.

If you have any questions about changing the structure of your loans, why not Talk to an Expert? Our accountant is available for one-on-one consultations in-person or via Skype.

Account for Customers

Canadian household debt currently stands at a whopping $1.8 trillion. Your customers are equally affected by the rising interest rates, meaning less disposable income to go around. It’s been conclusively proven that a rise in interest rates will cause consumer spending to drop. Consider taking a holistic look at your business and how you can drive sales via promotions and deals. Improving your marketing efficiency and customer experience can help insulate you during lean periods.