INTEREST RATES TUMBLE – WHAT SHOULD YOU DO?
One of the many effects of the Credit Crisis is the current unprecedented volatility in interest rates. This time thankfully the trend is steeply downward.
This is good news for businesses under profitability pressure. If you have debt of say $750,000, a 2% decrease in interest rates is worth $15,000 per year. If you have a Net Profit to Sales % of 10%, that interest saving will compensate for $150,000 per year in lost revenue.
The decreases have been so rapid that it may be worth taking a proactive approach to breaking existing fixed rate arrangements to go on floating, or lock into a lower long term rate. It is a matter of comparing debt restructure costs with savings arising. New thinking is required.
It may even be worthwhile looking at re-financing with another lender to repay higher interest debt. Those in stronger income and equity positions will be in a good position to consider this.
The first step is to approach your existing financier and ask for a proposal. This will likely get you a satisfactory result. If you are not satisfied with the response call us and we will assist with analysing the financiers offer, and discussing options.
The sooner you act the better. As the differentials between fixed and current rates increase, the cost of breaking fixed rates will increase.
Important: This is not advice. Readers should not act solely on the basis of the material contained in this report. Items herein are general comments only and do not constitute or convey advice perse. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas.
