Question

Explain how a rise in interest rates could affect the bank overdraft of a business.

Answer 1

Almost all small businesses have loans that are still due, and as interest rates climb, those debts are more expensive. Typically, you will need years to pay off these obligations, therefore any increase in the interest rate on such loans will result in you having to carry the debt for a longer period of time and pay more.

Answer 2

Step-by-step explanation:

Rising interest rates typically make debts more expensive (to acquire and service) while creating higher income for savers (in the form of increased rent income and loan interest income). The rise in interest rates, in general, affects businesses in diverse ways, including a fall in revenue; firms with overdraft obligations will have higher costs since they must now pay more interest to service the debt. It is important to understand the likelihood of what will happen to your business finances in dealing with the potential increase in interest rates