By Charles Sharf
With Ben Bernanke’s recent warning that the years of low interest rates will be coming to an end, my team and I have trying to answer the question: “What does this mean for our clients?”
The last five years brought with them a lot of heartache for small- and medium-sized businesses (SMEs) but also very cheap money, if you found someone to lend it to you. The reality is that an increase in interest rates could really hurt in the short term. It is a safe assumption that most companies have been borrowing at a rate of between 3.5 and 6 percent. Even a 2 percent increase can cause between 25 to 60 percent increases in everyone’s financing costs.
For the apparel sector this could be particularly detrimental because companies are paying more than ever to produce their goods in China. If you combine this with added financing fees, there could be a real impact to the bottom line.
At CBC, we do not think this will happen overnight, but it is something that SMEs in the retail/apparel sector should be thinking about.
To prepare for this, clients should be forecasting slight increases in their financing costs, and monitoring other areas of their overhead where there might be hidden savings. Even if the rates do not rise in the near future, this is a project that should be undertaken by companies on an annual basis: it just might be more important in the next two years.