Increasing rates choke SME growth

SIOBHAN LEATHLEY
Last updated 05:00 03/02/2014

Relevant offers

Small Business

Jyoti Morningstar: How I keep well Spread your brand far and wide Entrepreneurs nervous about election Small business: Get up and running lean Moving your business to the US Cutting it in the city Dargaville's Jack Fannon calls it a day Investment in startups the answer, says Parker Bankrupt but not beaten Hi-tech knight saves women's lives

Borrowers have been granted a six-week reprieve before interest rates increase. How will the eventual increase affect small-business owners?

Point-of-sale retail software company owner Vaughan Rowsell said although Vend was venture capital funded and therefore immune to rate increases, his SME-owning customers would not be.

He said these businesses operate on tight margins and any increase in expenses would significantly impact on their business's future growth potential.

"Every small business retailer has aspirations to be a multi-store retailer; they don't set out to be mediocre."

Three years and $11 million venture capital has seen Vend expand to four countries, and grow from a one man operation to 90 staff.

"I could have bootstrapped and grown to three to four people and been a mediocre success. But venture capital allowed me to grab the bull by the horns and scale the business considerably."

Just Water International chief executive and Entrepreneurs' Organisation NZ communications chair Tony Falkenstein said EO members were "surprisingly" optimistic about the increase.

One member told Falkenstein: "We learned some hard lessons during the GFC, from that point onwards [my company] made the decision to keep debt at a minimum and cash reserves at a maximum, therefore higher rates is not a concern for us, in fact it will be a benefit".

Others, Falkenstein said, were simply unconcerned about it.

"For a lot of them their biggest asset is software so there is not a lot of capital needed."

In terms of Just Water International, he kept the majority of his business debt at a fixed rate, and floated debt he knew he could repay.

He suggested owners float short-term debt and fix long-term.

"Look at what you can afford. If it's fixed then you don't have to worry if rates increase."

Generate Accounting managing director Angus Ogilvie said increased rates equals increased expense, which leads to decreased profit, and therefore decreased dividends for shareholders.

Ogilvie said everyone felt the pain of interest rate increases, but business-loan borrowers who paid higher rates felt it more than most.

If owners are unable to repay their business loan then they may lose their house if it is listed as collateral, he said.

"If the business fails, because there is no limited liability then the bank can come after the individual too."

Ad Feedback

- Fairfax Media

Special offers
Opinion poll

Do you feel better off than at this time last year?

Yes

No

In some areas yes, others no

Vote Result

Featured Promotions

Sponsored Content