Inflation globally and in Canada continues to rise, largely driven by higher prices for energy and food. Central banks around the world are increasing rates to combat this high inflation. In Canada, the central bank increased its target rate for the overnight rate to 1½% on June 1, 2022 and it’s expected that this will increase further at the next scheduled announcement date of July 13, 2022.
So what does this mean for your small business?
1. More Expensive Loans
Whenever you take on a loan for your small business, make sure you review the terms carefully, including whether you want to take on a fixed-rate or variable-rate loan. Fixed rate usually results a higher rate upfront but means you are not impacted by rate increases for the term of the loan. However, if you have a variable loan, every time the central bank raises rates, your payments become more expensive.
While this expense changes over time, the additional cost can impact small businesses even more when other costs are also going up. As more rate hikes are expected this year, make sure you take a look at your expenses and determine whether you need to adjust your financial plan.
If you are anticipating needing a loan soon, try to lock in a lower rate sooner rather than later. But be aware that it may be harder to qualify for loans in a high interest rate environment.
2. Stalling Growth
With the central bank trying to temper demand, consumer spending may likely slow down as well. This could mean that some industries, especially those where their customers may need to acquire financing to purchase, may feel this more acutely than others
To prepare, make sure you are reviewing your monthly costs on an ongoing basis and ensuring that you are operating as lean as possible. If you are paying unnecessary costs, resolve those issues now so that you are prepared for the slow times.
A high interest rate climate may seem daunting to you as a small business owner. Remember the team at Stonehenge Accounting is here to help make sure you are set up for success, no matter what your personal circumstances may be. Feel free to connect with us to discuss further.