Some brief thoughts on our discussion, from a small business perspective:
- Although the impact of interest rate increases takes a while to work through the economy on an overall level, small businesses can feel the impact in the short term, if not immediately. Examples include the rising cost of money, as interest rates increase on outstanding loans/lines of credit and become a disincentive to pursue expansion plans, such as additional premises and equipment.
- Remember that many small business leaders contributed cash or took out financing to secure the operations of their company during the pandemic years; recent studies have shown that approximately one-half of companies have not yet returned to their pre-pandemic financial performance level.
- When small businesses reach the point where they are no longer viable, or where the owner does not want to carry to risk of operating any longer, the result is often closure. Sometimes, the last straw can be a major cost increase, such as rising rates in terms of loan or mortgage interest. The inability to find or afford staff members can also be particularly draining.
- As an example, when a small business closes, it could put 20 people out of work. This might seem insignificant, but as business closures increase, it may not be long before the numbers become quite concerning. Consider businesses in your community that are no longer operating, keeping in mind that restaurants, services, and small retail can be particularly vulnerable.
Although it is important to continue to combat inflation, it is equally critical to not reach a point where “you can’t see the forest for the trees”. Understanding the practical realities and challenges that Canada’s small business sector faces on a daily basis is essential for bringing the right balance to considering interest rates, and the current pause is understandably a welcome relief to many. Going forward, as previous rate increases continue to work through the system, it wouldn’t be surprising to see continued pause for some period of time.
As always, thanks for watching!