A survey conducted by the British Chambers of Commerce showed that only 39% of participating companies plan to increase their prices over the course of the next three months, which is a 13% decrease from the results of their previous survey published in April, Reuters reported.
This is due to the improving economic outlook and the Bank of England considering the possibility of decreasing interest rates, possibly within the next month.
The Bank of England keeps the interest rate steady at 5.25%, and the inflation rate had already hit the bank’s target of 2% in May.
How Does Low Interest Rates Benefit Startups?
Low interest rates are advantageous to startups in a number of ways, especially for startups planning to obtain investment.
Since borrowing money is more affordable, people may increase their spending as consumer behaviour is influenced. This can help increase sales for startups as a larger market is created.
Here are a few key ways low interest rates benefit startups:
Increased Accessibility To Capital
Startups can gain access to capital with more ease when interest rates are low. This is because less money needs to be paid back on the loan, making loans more affordable.
Startups can thus secure loans for less, and utilise the saving for developments in other areas, such as growth initiatives, equipment, and research.
Investor Interest Increase
Since lower interest mean less money accumulated from savings, investors may look to more opportunities to increase their earnings. Higher-risk investments typically accumulate higher returns than lower-risk investments, making ventures like startups (which are usually considered to be high risk investments) more attractive to investors.
This increase in investor interest can increase the likelihood of funding for startups, enabling them to develop and expand their business.
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How Can Startups Take Advantage Of Low Interest Rates?
The low and steady rate of interest coupled with the low inflation rate create a favourable environment for new and growing businesses. There are a few ways startups can prepare to take full advantage of these circumstances.
Prepare For Investments Or Loans
Lower interest rates may make it easier for startups to obtain loans and investments, but lenders and investors will still prioritise startups that have strong financial records and projections, as well as those with a well-constructed business plan. Startups should adequately prepare to increase their chances of getting a favourable deal.
Startups should also refrain from blindly settling for the first offer they receive. Startups should be mindful to compare the rates and terms from different providers to help them choose a deal that is most favourable and suited for their needs. Some of these include banks, credit unions, and online institutions.
Prioritise Strategic Investments
Startups can take advantage of the lower borrowing costs to fund investments that strategically benefit the business. These include efforts such as expanding their product line, entering new markets with new innovations and updating technology.
Low interest rates also enable startups to invest in more expensive assets such as equipment, which may have been out of the question with higher interest rates.
Manage Cash Flows
Take advantage of low interest rates by settling any debt and renewing lines of credit. This can help free up finances so that businesses can direct their attention to other areas of the business, and help protect businesses in case of seasonal fluctuations of unexpected expenses.
Startups Should Remain Mindful Of Long Term Consequences
As low interest rates may tempt startups to go all in with investments and loans, it’s crucial for them to stay mindful of the long term consequences and unforeseeable changes that may occur.
Startups should avoid accumulating excessive debt and must always factor in their ability to repay loons with interest, even if rates increase in the future.
Startups should also stay focused on maximising profitability, prioritising measures that help grow the business and become more profitable.
As interest rates remain low and stable and inflation is at an all time low since 2021, startups are encouraged to make the most of the opportunity and make strategic moves that can help them expand and increase profitability.
