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Mazars shares tips on how businesses can survive rising interest rates
It is important to understand all your options as a business owner and consider the range of hedging tools on offer by many banks and lenders.
In the wake of consecutive rate rises and higher inflationary pressure from the rising cost of doing business, it is important to understand all of your options as a business owner and consider the range of hedging tools on offer by many banks and lenders.
To assist business owners, Mazars' debt advisory specialists have prepared key questions business owners should be considering to best mitigate risk and future-proof their business:
Q: Have I been talking to my bank manager and Bank Treasury specialist?
A: Talking to your bank manager can give a business owner a better understanding of their exposure to rate rises. It also gives the bank the opportunity to present in-bank options to mitigate these risks.
Q: How leveraged is my business? Am I still able to make repayments with rising interest rates?
A: Looking at your ability to make repayments when the interest rate is 2% above current levels may provide the business with confidence or insights into your level of interest rate sensitivity.
Q: Is asset realisation an option?
A: There is a weak correlation between rising interest rates and declining real asset values. If you find yourself in a position of repayment sensitivity, it may be time to consider realising the value of assets.
Q: Is my business dependent on discretionary spending volumes?
A: There is a correlation between increasing interest rates and declining discretionary spending. If your business is dependent on discretionary spending it may be time to consider how to futureproof your business through diversification.
Q: Do I have adequate working capital to navigate uncertain times?
A: With interest payments increasing and reduced consumer spending, it may put stress on the working capital within the business. If this is likely to be the case a working capital review may be necessary.
In consideration of the questions above there are a number of traditional interest risk mitigation strategies which can provide a level of protection against rising interest rates including:
- Swaps.
- Fixed rate loans.
- Caps and collars.
- A combination of any of the above with variable rates.
There are positives and negatives to each of the facilities mentioned, depending on your risk appetite. Understanding your business and its requirements to continue trading profitably is the most important step. In recent years we have seen a raft of specialist facilities arise, these can be considered in conjunction with traditional banking facilities to focus on areas of concern within your business.
We’re also seeing a rise of alternate finance options in the working capital and trade finance space across banks and non-bank lenders. While interest rates and fees may vary from institution to institution, turnaround times and functionality can lead to access to prompt access to funding.
Source: Mazars
