Rising interest rates can impact a business’s ability to access and service debt
Credit Review was set up by the Minister for Finance to ensure viable businesses have access to credit from Irish banks. Our appeals process allows businesses to have an independent review when a credit request is declined by a bank. We look at the company’s track record, existing debts and future potential in determining whether a business is viable and will have sufficient cash to cover the interest and repay the credit.
Changes in interest rates will impact on a company’s ability to repay credit. Interest rates on business loans are influenced by a variety of factors, including the current economic environment, the creditworthiness of the borrower, and the lender’s risk appetite. In an effort to curb inflation the European Central Bank raised interest rates on 4th May 2023, for the seventh time in less than a year.
For SME’s seeking a loan the increased interest rate will impact on the cost of their loan and increase the repayments. When planning to seek credit to expand your business be sure to consider the impact of the higher cost of funding on your future cashflows. When a bank is assessing your loan, they are required by Central Bank regulations to stress test business cashflows to see if they can cope with a future rise in interest rates. If your business financials don’t support such interest rate rises you will likely be unable to access additional credit.
Businesses who already have substantial debt may be placed in a precarious situation if too much of their cash is consumed paying off higher interest rates on their variable rate loans. When interest rates rise, additional costs are incurred by the organization with no corresponding increase in revenues to offset them, profitability is reduced and cashflow may be squeezed.
Getting Help from Credit Review
We encourage all business borrowers who feel they are having difficulty accessing credit to contact Credit Review. In addition to our appeals process Credit Review operates a helpline service providing useful information and assistance over the phone and sometimes credit issues can be resolved without needing a formal appeal.
For more information on our independent appeals process and information services, visit creditreview.ie or call the helpline on 0818 211789.
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