By raising interest rates, central banks are using a typical monetary policy tool to curb inflation and are moving away from the historically low rates that have been in place since the 2008 financial crisis.
The rate hikes not only make borrowing more expensive for businesses, but also add more hurdles to obtaining a commercial bank loan. As a result, borrowers often look for alternative lenders.Banks react to the state of the economy and to interest rates trends. The easiest time to geta loan would be when interest rates are falling and the economy is growing.
With interest rates rising and economic uncertainty increasing, British Columbia and the rest of Canada are currently experiencing the worst of both worlds, said Chris Catliff, president and CEO of BlueShore Financial. Catliff says this will affect margins. Large established business es with good financial records and bank relationships should still be able to get loans, though likely on less favourable terms than they’ve become accustomed to over the past decade, Catliff said. Others could face increased difficulty getting credit.
“The ease with which [busi- nesses] can get new loans will be much more difficult, and if they have unused lines of credit, a portion of that might get reduced,” said Catliff. “But I think the bigger issue is if they have term loans or commercial mortgages, they are going to have to pay a lot higher monthly payments. It could be two or three times higher.”
With traditional lenders supplying less money to businesses, the demand for alternative lend- ers is likely to grow, according to Catliff.However, with less money to go around, those lending sources will be unable to meet that new demand.To weather the storm, Catliff suggested businesses mind their costs, as top-line revenue could be affected. He added that it’s important to take a long-term view of these things and not overreact to short- term market news.
