Interest Rates Set to Rise
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With the economy beginning to recover from the recession, bank interest rates are set to rise again – as much as five per cent over the next five years, according to some economists. While this is good news for your savings account, farmers and other business-owners should plan ahead for the impact of these rising rates on costs and loans.
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Farmers holding unproductive assets might want to lighten their load, and should start working on strategies to help them offset the impact of the rising interest rates. Because of the nature of the industry, many farmers are carrying a very large level of debt, as opposed to other industries.
According to economists with the Bank of Montreal, interest rates could climb as high as 3.25 per cent by the end of next year.
Longer-term rates are not expected to increase as much as the short-term rates. In order to take advantage of current low interest rates, many businesses will want to start thinking about their financing options now.
For many farmers, that will mean reviewing their long-term strategies to reduce risks and ensuring that they are maximizing the opportunities for savings wherever possible.
Programs like the federal government’s AgriInvest can be a wise start for many farmers. AgriInvest matches participants’ contributions to their savings to help agribusiness professionals build a bit of security in the case of financial hardship down the road.
If your capital was built up by a lot of expensive debt, now is the time to make sure you get your business shaped up to take advantage of the coming economic growth cycle. The healthy market will present a lot of opportunities for business-owners who are in good shape financially. Reviewing the structure of your capital and making sure you have a carefully thought-out, long-term plan for your business will help you get to where you need to be. Take a look at your current debt and make sure you have a plan in place to be able to keep paying it down, even if the interest were five per cent higher.
Other steps you can take to ensure that you’re in a position to stay in control of your debt: consider renting your land or equipment, sell assets that aren’t earning you any money, and avoid high debt where possible. This is also an excellent time to look over your retirement plans, as well as your estate plans, to ensure that farm’s future and your future generations will not be overrun by your debt, either.
