Should You Borrow Because Of Low Interest Rates?
It is really tempting when the interest rates are so low and there is instability as to whether these may go up, whether you should now take the opportunity to borrow. Some individuals feel that with the interest rates so low that may be now should be the time they max out their line of credit to help pump up their cash flow. This is more in keeping with the businesses.
There are a few problems with doing this with one of them being the possibility that you are stretching yourself to your limit with your funds that you can access in the case of an emergency. You are leaving yourself with an empty financial net.
You could very well and up making an agreement of a floating interest rate which means that if the rates go up you are now going to be stuck with a higher pay back. When you have to borrow for your company you need to do this in a strategic way.
Often the mistake that is made is that the business will borrow the maximum amount that the lending institution will give them instead of borrowing what they actually need. This is where the expertise of your accountant can really be advantageous. This is the individual that knows exactly where your company stands according to the figures and can give you some sound advice as to what your borrowing capabilities are without getting yourself overextended.
Most often when individuals are looking to borrow they are doing so for a variety of reasons. It may be that their cash flow is weak and this is leaving them nervous, or it may be that their company is growing and there ready to extend. There is no doubt that the bank is going to look at the reasons and are going to want a lot of backup as to why you are solid enough that they should be making a loan to you in the first place.
If there is no need for extra funds at the moment don’t just be tempted because of the low interest rates to go ahead and borrow these. Even if you were to take the funds and set them aside, there’s a good chance that you would start to rely on them and in the sense they could give you a false business Security. This is money that you’re going to have to pay back and you need to balance out whether the purpose of the funds is going to bring a greater return compared to the interest that you are going to be paying on it.