Interest rates are high despite the Bank of England's effort to keep the costs low. It impacts the costs of living and business practices. Rising interest rates imply costly loans, limited cash at hand, and spending power. However, the worst part is- decreasing purchasing power.
Under rising interest rates, customers focus on ensuring essentials rather than purchasing big-ticket items. Thus, industries like- car sellers, home renovation, and decorative items may suffer loss. It indicates luxury and one hardly considers it in crisis.
So, how do you prepare your business for rising interest waves?
The blog lists the best measures that may help you protect your business operations and finances against skyrocketing interest rates.
7 Ways to shelter your business from soaring interest rates
For businesses that rely upon a constant borrowing system proves expensive. It may make entrepreneurs pause heavy operations for a while. Alternatively, they must re-consider their borrowing needs and fetch an affordable sum. Businesses having idle cash should analyse the best investment opportunities. Here are some ways to safeguard your business from high-interest blues :
1) Identify flexible and fixed funding options
Choosing fixed-interest and repayment loans for up to 5-6 years provides a cushion against unnecessary expenses. It saves you from paying more overtime, unlike a variable-interest loan.
With fixed-interest rate loans, you pay the same amount as repayment regardless of the economic changes. Additionally, explore the best fixed loan options before the inevitable rate hike. It is best for businesses needing cash within a month or two.
Check whether you can get flexible with repayments. Some providers agree to do so within extreme economic conditions or inflation.
2) Explore ways to fetch cheap finance
High-interest rates make it challenging for business owners to finance instantly. The lenders impose strict eligibility criteria to curtail lending practices. Here, businesses with low finances and credit scores suffer the most. They struggle to qualify for affordable options.
What can you do here?
Review your business plan, especially the cost structure. Understand the business operation costs and loan costs. Analyse the loans in both fixed and variable interest rate patterns. It will help you analyse the impact of slow demand on your cash flow. Next, the numbers will help you determine business profit, revenue, business sales and other costs.
Explore the possibilities to reduce business costs. It may mean- halting big project investments, discussing costs with suppliers, and optimising working capital. Eventually, it increases your cash reserve.
Secondly, invest more towards securing new clients and projects. It may help you with independent business finance. You may get a business loan with no guarantor requirement with fresh projects and expected revenue statements. A lender requires loan repayment assurance from the borrower. You may get instant cash support with sufficient affordability proof.
Additionally, finance only critical and time-sensitive business requirements with loans. Avoid making unnecessary loan applications.
3) Reduce business operation costs
As mentioned above, businesses with high and mismanaged cost structures struggle to get a loan. Moreover, unstable revenue impacts the business's cash flow.
Identify the best practices to reduce business costs respectively. You can do so by:
- Shopping around for cheap business credit cards
- Switching to work-from-home model for sometime
- Cut back on travelling for meetings by hosting most meetings online
- Switch to energy-saving electricity modules like- sustainable energy sources
- Hire versatile individuals to reduce hiring costs
4) Monitor the Euro's value against other currencies
Rising interest rates increase the country's currency value. It may imply – that businesses may encounter slow overseas sales. It is because the deals get costly for them. It directly impacts the profit percentage and margins.
So, a business, dealing internationally must analyse the loss across the major countries it deals with. Identify the best ways to curtail this loss. You can reduce the chances of loss in international business by:
- Adjusting pricing structures by researching the competition
- Conduct fewer promotions than massive campaigns
- Provide deals and discounts to your loyal customers
- Provide additional complementary services to balance expenses
- Optimise the supply and distribution process to reduce shipping costs.
5) Consider equity financing option
It is one of the best ways to avoid interest costs altogether. Equity financing involves sharing a part of company ownership with the financer. You can promote the sale also with stocks and shares. You can use this as capital to finance your immediate and long-term business needs.
Rising or falling interest rates do not affect equity financing. However, finding the right investor depends on your purpose and the company's value. Also, the investor analyses the company's profit statements, debts, and further projects for the final analysis. He agrees to invest if the company's finances seem satisfactory.
6) Try to pay some debts
The less debt you have, the fewer interest liabilities you have. Analyse the impact of rising interest rates on debts. You may not witness any changes in fixed interest rates debts. However, you must review the debts with variable interest rates.
Analyse the variable debts that you can pay comfortably. It will help you reduce some overhead liabilities. Moreover, this action on your part reveals responsible financial management. It may help you secured instant cash at comparatively low interest rates and terms.
Additionally, review CCJ, double debts and credit card payment structure. Check whether you have double entries on CCJs. It also impacts your credit score.
7) Identify ways to reduce supply costs
Inflation impacts the business process in its entirety. From the supply chain to distribution and logistics. It impacts everything. Thus, suppliers may increase their costs of supplying the raw material. Identify the best ways to reduce the supply costs. For example, you can affirm them by providing more projects. Suppliers like clients with regular requirements. They may provide you with the raw material at the same rates.
Alternatively, automating some business processes consumes the most effort and costs. For example, you can automate administration processes like- invoicing, payroll order placement and tracking processes. It will help you save on labour costs.
Bottom line
To sum up, navigating through interest fluctuations proves challenging for startups. Thus, entrepreneurs must understand the impact of rising interest rates on business. It helps them take actionable steps to protect businesses from inflation blues. Analyse the best funding options and cost impact on the cash reserve. It will help you decide the best.
