Will Interest rate increases affect Businesses?

No matter who you talk too in Australia, we all know that interest rates for homeowners has increased at .25% for most homeowners with a variable mortgage loan.

Do interest rates affect businesses too?

The answer is YES.

When it comes to customers who pay interest on personal loans, home loans and car loans, the higher the interest rate, the less money in a customer’s pocket.

This can reduce their ability to buy products and services, so businesses may see a decrease in sales.

With relation to the cost of borrowing, interest rates rise, banks charge more for business loans. This means you will need to use more of your earnings to pay interest on your loans, which then decreases profit.

This can stop many business owners from starting new projects or expansion during periods of high interest rates, which then impacts the growth of the business.

When interest rates are low, businesses are confident and they can borrow more readily. When they increase, then the confidence lowers and could have a negative effect on the business.

Everything depends on the economic environment.

Businesses who invest their excess cash in interest – bearing accounts will make more money during periods of high interest rates, when rates are low, business are more likely to use their cash for new equipment and plant improvements.

As we know, there will be further interest rate increases happening during the year and will be interesting what impact this will have on businesses.

If you would like to discuss further, please don’t hesitate to contact me on 0429 363 047.

Maree Punzet | Maree’s Mobile Bookkeeping | 0429 363 047
You didn’t go into business to do your Payroll and Bookkeeping, BUT WE DID