Small and medium enterprises (SMEs) must use the prevailing low interest rates environment to clea debt, says Gerrie van Biljon, Executive Director at Business Partners.
According Biljon many SMEs are burdened with high levels of debt at the moment, which they have built up over many years. The low interest rate environment that South African SMEs are currently operating in should provide an ideal opportunity for businesses to pay off the debt weighing them down. “Interest rates at this low level come as a relief to the already struggling business community. Although the recent cut in interest rates may be small, every bit of relief is welcome.”
Van Biljon says that in this environment, business owners that can afford to accelerate their debt repayments should definitely do so. “By paying an increased instalment business owners can reduce the payment term by a significant extent. Where possible, entrepreneurs should see this as a golden opportunity to get rid of debt sooner.”
He says that the increased cash flow available to business owners due to the interest rate cuts opens many doors for SMEs. “Additional cash flow relieves pressure and also gives SMEs the freedom to expand or reduce costs. The temptation to spend this additional cash flow should be resisted and rather be used to reinvest in the business or build up a nest egg, which most businesses are not usually able to do.”
Van Biljon says that entrepreneurs should capitalise on this favourable situation whilst it lasts. “While the interest rate trend is not clear, the possibility always remains that rates will increase over a period of time, which will have negative financial consequences for SMEs. Business owners should ensure that they use of this window period as best possible,” concludes van Biljon.