Business loans and lines of credit are often necessary to maintain operations. They also increase working capital for emerging small businesses. However, interest rates are now rising rapidly, affecting loan payments. Increasing interest rates also discourage people from borrowing more money, promoting saving rather than spending. Hence, it reduces expansion, making growth incredibly difficult for small business owners.
How SMEs Are Affected by Higher Rates
Small and medium-sized businesses (SMEs) typically rely on loans and business financing. This is especially so in the initial growth stages of operations. Going into debt is common for any business. But with interest rates rising, it is becoming more difficult to pay back a business loan.
This often means businesses must find alternative funding options, and these include taking on more debt. However, the cycle of debt is only worsened by rising interest rates. This leaves many SMEs unable to keep their businesses afloat while repaying the loans.
10 Tips to Tackle Rising Interest Rates
So, if you are a small business trying to survive the increasing interest rates, you should:
- Work with a financial partner who will help you to navigate any difficult financial decisions and create a plan that works best for your business.
- Revisit your business plan. Look into short-term and long-term solutions to tackle your debt. Track sales and expenses diligently to better understand the cost history of your business.
- Finance now rather than later. If you need business financing, act before interest rates rise further. This can potentially save you from higher interest payments.
- Avoid taking out unnecessary business financing. Taking out loans to cover debt may be tempting, but it will only worsen the situation if interest rates continue to rise. Eventually, you won’t be able to keep up with payments.
- Convert your variable interest rates to fixed rates. A fixed rate is a more stable and safer option in the long term.
- Look into alternative financing platforms that allow for more flexibility than traditional banks. Such platforms include crowdfunding or an online private lender.
- Sell company equity. This is not an ideal solution, but it is a quick way to raise capital and improve cash flow during financial stress.
- Implement invoice financing. This is a way for your business to borrow money against amounts due from your customers, so as to improve your business’s cash flow.
- Reduce your fixed costs by doing research on temporary solutions and better deals within the market. There is always a better deal!
- Offer incentives to motivate staff to create new cost-saving methods within the company. Implementing expense saving alternatives is an excellent way for your staff to find solutions and get creative.
Using Private Lenders to Navigate Rising Interest Rates
Private lenders offer more flexible loan terms and less paperwork than a traditional bank. Businesses are not limited by a low credit score, and private lenders are more likely to approve a loan quickly. Poss Capital offers you access to Quik with fast, flexible loans with your choice of tenure and no early repayment fees, so your business can grow rapidly.
SMEs will always feel a direct impact regarding changes in business financing, market rates and inflation. With interest rates still on the rise, you should consider different money saving methods for your business. For more information and assistance navigating rising interest rates, speak to us for advice on our business financing solutions.