What should I consider in a rising interest rate environment?

What should I consider in a rising interest rate environment?

The business environment has been on a roller coaster for the last 2 years since Covid-19 first appeared, and it doesn’t look like stopping anytime soon.

As a result of government stimulus measures to combat the economic impact from lockdowns, this additional money injected into the economy is now causing inflationary effects. A measure the Reserve Bank of Australia implements to dampen inflation is to raise interest rates.

To ensure that you are best positioned to deal with the effects of increasing interest rates, we have prepared the below points to consider –

1. Review existing loans

• Are they fixed or variable?
• What are current repayments?
• How would repayments be affected if rates increased by 1% or 2%?
• Assess current rates compared to market, are they well placed or too high? Is there an opportunity to refinance for a better rate?

2.  Cashflow budgeting

• Do you have a cashflow/profit & loss budget?
• Has it been updated to reflect projected interest rate changes?
• As a result of forecasted rate increases does it present any cashflow issues in 1 year, 2 years, etc.?

3.  Actions

• If assistance required for points 1 & 2 above, contact your adviser and seek guidance (e.g. accountant, banking relationship manager)

Increases in interest rates will have an impact when borrowings are in place, however with appropriate planning they can be better managed and reduce the effects on the business. As the 2023 FY is nearing, it would be an opportune time to prepare budgets.

If you have any queries on the above and would like to discuss further, please contact our office on 08 8333 7300.