Demonetization and digitization brought about a sea of change for small businesses in India. Ironically, the increase in interest rates has hurt the growth of small and medium-sized businesses.
We will look at how small businesses can deal with the business loan interest rate situation and what led to the interest rate increase in more detail shortly. In India, growing debt levels have caused a credit crunch that adversely affected small businesses. Starting a small business and operating a small business has become increasingly difficult due to rising business loan interest rates.
There is a relationship between interest rates and these industries’ cost competitiveness. As a result, you will find it more difficult to expand or grow your business. In contrast, stopping its growth will affect the economy by increasing hiring and spending.
Managing debt levels
Keep some money in the bank for paying off existing loans and debts in an environment of rising interest rates. Your business may need more loans to operate, but if you fail to repay your existing debt, it will add to your burden and affect your credit score. To manage the critical situation, assess your current debt levels and draw a plan accordingly.
Renovate your business plans:
Small businesses may experience a loss if interest rates increase. Make sure your business can increase rates and invest further in the future during such times. Your business plan needs to be reviewed and adjusted accordingly for this to be possible.
Rely on multiple businesses for a bailout
Every business performs differently in different circumstances. You might incur more losses if just one of your business lines fails. It is possible to adjust your losses in one business by using the profit. You can use a business loan EMI calculator if you have more than one business.
Automating processes to reduce unnecessary manual labour
Your business might be threatened by high-interest rates, making you give up. Reduce manual labour and automate the process to reduce your enterprise’s expense to prevent bankruptcy. Cash-strapped people should only resort to this last resort.
Revenue streams should be evaluated.
Before inflation occurs, it’s time to evaluate the integrity of your revenue streams. During an inflationary period, your business model may be compromised if your products are discretionary or if you are unlikely to be able to compete on price. Prepare your revenue forecast ahead of rising prices by reconfiguring it to accommodate inflationary pressures.
Although your prices may rise during inflation, you will still have to reduce your costs. Cost reductions in the best scenarios would involve an increase in your profit margins at the time of inflation; in the worst-case scenario, reduced costs would lower your losses or even prevent your business from going under. Contract long-term suppliers and prepare to reduce your workforce if inflation persists for a long period.
Take out a loan now
Before interest rates rise, it is good to borrow for capital and operations costs. To mitigate the impact of later cyclical lending needs, begin by taking out an operating line of credit at today’s rate. You might also consider borrowing capital now to achieve a lower cost structure and a more reliable revenue stream.
Refocus customer loyalty initiatives
You may save yourself from extreme inflation by being loyal to your customers. Prices may increase, causing your existing customers to switch to alternatives with lower prices. Now is the time to create value-added incentives that will encourage your customers to stay with your brand no matter what price increases.