Rising interest rates cycle could affect SMEs

As South Africa comes to grips with the rising interest rates cycle, small and medium-sized businesses will face a tough task to stay in business. Following the end of a cycle in which the South African Reserve Bank (SARB) kept interest rates at their lowest levels in decades, the current trend will be a challenge for various sectors of the South Africa economy. The rise in interest rates will definitely have an impact on small and medium-sized businesses in the short-term, because it is affecting the entire eco-system that the sector needs in order to flourish.

The upward trend in interest rates comes on the back of rising inflation, high consumer debt levels and a contracting economy. With economic conditions remaining tougher, the main question is whether the state of the economy threatens the survival of small and medium-sized businesses that are currently operating.

Though the South African economy is in a precarious state, there is no need to panic. Economic pressure is something that every business needs to absorb effectively and small business is no different. However, during this period, it is vital for businesses to limit overexposure to debt and work closely with their bank to ensure that the business remains sustainable.

One of the unfortunate trends banks often see is that business owners tend to wait until the business is in trouble before they contact their bank for a solution.

"Do not wait until the last minute to seek a solution to your debt. The best that a small business owner can do is to work with their bank to evaluate the impact of the change in interest rates on their repayments," he concludes.

To download podcast, on Soundcloud here.