Friday, 03 February 2023 12:57

How high interest rates can impact businesses for better and for worse

Written by Evelyn Alas

For any business, cash flow is the lifeblood of success. Too often, however, owners overlook how interest rates can play an important role in their capital structure and profitability.

This oversight can have serious consequences for companies in terms of increased costs, slowed growth potential and reduced competitive advantage.

1-Reduced ability to service debt: This can lead companies to incur rising costs without a corresponding increase in revenues to compensate. Companies can be left in a precarious position if too much of their capital is consumed by paying high-interest debt.

Qué es la Tasa de Interés? - CMF Educa - Comisión para el Mercado Financiero

2-Slower growth: When interest rates rise, companies often achieve slower growth rates due to the difficulty in accessing loans, as well as the higher costs associated with borrowing.

Tasas de interés en Guatemala - Market Data México

3-Businesses with floating money: With this increase the interest income of banks and institutions increases in turn. As such, a higher float could lead to higher yields when interest rates rise. Not only that, but it can also help them expand their business at a time when competitors are having trouble keeping up.

Conozca cuáles son las tasas de compra de cartera que ofrecen los bancos –  Accounter

4-Companies with positive cash flow: Companies can potentially benefit when interest rates rise because they can invest their money in higher-yielding securities.

When the general interest rate in the market increases, companies with positive cash flow can use this surplus capital to purchase securities and investments that pay a higher yield than before, allowing them to further increase their positive cash flow and maintain liquidity.


Translated by: A.M