No cure-all for rising interest

Last updated 05:00 07/07/2014

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The best way for small businesses to manage rising interest rates may be to do nothing at all, a banking expert says.

Since March the official cash rate has been raised three times from its low of 2.5 per cent to 3.25 per cent, resulting in banks lifting their interest rates on home and business loans.

Massey University banking expert David Tripe said more increases were likely in the near future. "There's a strong expectation of a further rise in interest rates at the end of July."

There was no simple answer for how small and medium businesses could minimise the impact of rising interest. However, establishing what debt requirements were, what interest costs were going to be and what a fixed or floating rate would offer were all important areas to review, he said.

"It may be that not actually doing anything is the best thing to do," Tripe said. One saving grace of rising interest rates was that interest costs were a relatively small part of the overall running costs of a business.

Many long-term interest rates had anticipated rising interest rates built into them, he said.

"That means rushing off trying to get some fixed-rate funding now may not necessarily achieve much because you're actually too late."

Grant Thornton privately held business partner Eugene Sparrow said about half of start-ups he dealt with were concerned about rising interest rates.

More were turning to alternative financing options such as attracting new equity partners.

Bringing in mature businesses not only opened up new funding options, but also knowledge and expertise.

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- BusinessDay.co.nz

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