What to do when cheap money runs out?

While I'm driving to my next appointment, the DJ on the radio has a riddle for his listeners: "What has 21 eyes and yet can't see anything?" With many eyes you can still be blind. The answer is obvious; a die. Humour.

This morning's conversation was also about a dice and did not have much humor in it, but it did get to the heart of the matter; you can't always roll a six. The entrepreneur in question was never afraid to take risks and had been able to benefit from an ultra-low interest rate on his Euribor loan for years. Meanwhile, he pays more than 6% variable. An increase of 500% compared to 1,5 years ago.

We see the same picture among governments in Europe and also in the US. Interest costs put pressure on everyone's budget. This will sooner or later have an impact on the spending capacity, that goes without saying. The main question is how politicians will deal with this. On November 22, we can go to the polls again, where the following question will be central: whether to govern on the right or on the left. It is not yet clear how this development will have consequences for the business climate in the Netherlands. In any case, the expectation is much bleaker than we have seen in recent years.

For interest rates, it is perhaps even more important to also look at developments in the US. After all, they are often six months ahead of us and it is important how politics behaves in relation to inflation, debt burden and vision of the future. In any case, we should not expect any miracles at this time. Global tensions, energy transition and economic headwinds have so far prevented interest rates from returning to pre-inflation shock levels.

We must prepare for a world that is more complex and uncertain. You can certainly see it reflected in the interest rates. Banks and investors demand a higher risk premium. This means a structurally higher cost of money for now, but probably also for the future.

Many fixed-interest loans will expire in the near future and more and more entrepreneurs will be confronted with higher interest rates. This will also, or perhaps especially, affect enterprising successful companies. It is necessary to think about this in advance. How can I deal with this and what are my options? Is there sufficient financial space in my payment capacity to absorb this interest rate increase? Or should I take other steps to deal with this?

Entrepreneurship means looking ahead and making choices. You know you can't always roll a six.

Farmers Funding & Advice takes care of business, business economics, tax and legal matters and realizes the most suitable financing.

Arjan Ausma

Arjan Ausma is senior relationship manager at Farmers Funding & Advice and he is a steward/broker. He also has his own farm.