7 strategies to manage interest rate unpredictability

2.5 min read

Supply chain disruptions, labour shortages, inflation and rising interest rates require food and beverage processing businesses to adapt. When borrowing costs continue to tick upward, there are strategies processors can implement to help soften the impact on their finances.

“You need to be very tactical if you are looking into locking into interest rates,” says Alex Lau, FCC Senior Relationship Manager, Corporate and Senior Accounts.

Locking interest when rates are high will hold you at those rates, paying higher interest rates when interest rates may drop.

Locking interest rates in shorter terms is one solution processors can use if they seek stability with their expenses. By securing a fixed rate, says Camila Diaz, FCC Senior Relationship Manager, Commercial Financing, you will know your payments, making it easier to plan cash flow.

Variable rates can also provide some benefits, particularly when the business may be disposing of assets, as they could save potential prepayment penalties. Also, variable rates allow for a lower interest rate if the business can endure rate unpredictability for a few more years.

Lau and Diaz recommend food and beverage processors adopt these seven strategies to manage interest rate unpredictability:

1. Evaluate

Create and continually review a financial plan to aid with decision-making and finding those areas of revenue and loss.

“If you're looking at your plan regularly, then you can make any necessary changes before running into issues," Diaz says.

2. Understand your cash flow

Review each expense line, administrative costs, labour costs, legal fees, and everything else. Ensure you get the full value of each cost and cut out redundancies.

3. Make revenue producers the stars

Focus on the items that make the highest margins, as these are the revenue producers.

“Don’t forget to look at the areas where you’re losing money to determine whether these or products are worth maintaining,” Diaz says. “If the answer is yes, consider what needs to change to make these items profitable?”

4. Make your money work for you

Take advantage of the higher interest rates and make some investments to benefit from a greater return. It is about ensuring the money works for you and not just sitting passively in a bank account.

5. Strengthen partnerships

Partner with a supportive lending manager who considers your day-to-day needs and the big picture.

"Don't be afraid to ask for accommodation," says Lau. "If you don’t ask, you won’t get it. The banks know the situation that you are in.”

6. Seek funding opportunities

Apply for grants and any available funding opportunities.

"The government does give a lot of interest-free loans and grants,” Lau says. “That's low-hanging fruit that if you have time and energy, you should look into it.”

7. Negotiate

Speak with your customers, which may include increasing their prices when appropriate. Processors cannot absorb all the costs - there must be some give and take.

Businesses will benefit by focusing on the aspects of the operation that they can control, including the price of their products, labour and operational costs. You have no control over the interest rate. Look at every line item and see how you can increase revenue and decrease costs.

“You have no control over the interest rate, so you need to look at every line item and see what you can increase in revenue and decrease in costs to make up for that difference in interest rate," Lau says. “It's just pure math; there's no magical solution.”

Article by: Anne-Marie Hardie

Money & Finance