How Small Businesses Can Handle Rising Interest Rates?
Traditional small businesses which include everything from small family run enterprises to the kirana shop around the corner are a unique and integral part of our economy. In the wake of digitization and demonetization, small businesses in India underwent a sea of change recently.
Ironically, with banks increasing the interest rates, small and medium sized enterprises have taken the hit on its growth. Let us look more in details what led to the increase in interest rate and how small businesses can handle the situation.
Impact of High-Interest Rate
Increasing debt in the Indian banking system has led to a credit crunch which affected the small enterprises adversely. Rising interest rates have become a hurdle for start-ups and small enterprises to operate, resulting in unemployment.
The interest rates do have a bearing on the cost competitiveness of these industries. Moreover, it will hinder your ability to grow or expand your business. While expansion will boost more hiring, and putting more money into the economy, stopping its growth will have an opposite effect on the economy.
Plan of Action to Handle Rising Interest Rates
Keep an Eye on Your Existing Debt Levels: In an environment of increasing interest rates, keep some funds always stored to pay back your existing loans and debts. You may tend to borrow more money to run your business, but failure to pay back your existing debts will add more interest and burden to your finance and affect your credit worthiness. Hence, evaluate your debt levels and draw a plan accordingly to manage the critical situation.
Remodel Your Business Plan: An increase in the interest rate can affect the profit of the small businesses. In such times, ensure that your business has the possibility for the rate increase and room for further investments. To make this possible, you need to revisit your business plan and adjust accordingly.
Multiple Businesses Can Bail You Out: Not all businesses perform in the same way in every situation. If you have just one line of business which is not performing well, you might end up acquiring more losses. When you have more than one line of business, your losses in one of them can be adjusted with the profit of another business.
Reduce the Manual Labour And Automate the Process: In times of high-interest rates, you might be pushed to the point of giving up your business. To save your enterprise bankruptcy, you can reduce the manual labour and implement an automatic process to cut down the expenditure. This can only be your last resort when you go cash-crunched.
Owning a business whether small or medium gives you a sense of pride when compared to being a salaried employee in a private organisation. But, to keep it up and develop, requires enormous amount of hard work and meticulous planning and execution skills. You need to be prepared for the worst times and safeguard yourself from some potential economic troubles.
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