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How do interest rates affect a business?

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Quick Answer

Interest rates affect a business by forcing an alteration in its financing and its accounts receivables strategies, according to Forbes. When interest rates rise, credit becomes more expensive. When rates fall, credit becomes easier for the business and its customers to obtain.

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Full Answer

A rise in interest rates, according to Forbes, can lead to a rise in the cost of doing business for any company that is heavily dependent on credit. This can result in a rise in prices charged to customers, slowing down purchases in the long term. For those businesses dealing in commodities, like farmers, a rise in interest rates may lead to lower prices due to investors abandoning the commodities market for the financial instruments and equities markets. The lower price for commodities may lead to a long term rise in sales, even as the cost of doing business grows if the commodity firms are reliant on credit. For all types of companies, sales may go up in the short term as customers rush to make purchases before the interest rates peak. Companies may also raise funds through credit in the short term in order to lock in the lowest possible interest rate. A drop in interest rates may have the opposite effect on businesses both in the short term and the long term.

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