There’s so much going on these past few weeks that affects business owners, so today we’re taking a pause from our recent topics to talk about this current environment instead. Suddenly banks are failing, so we’ll get into what’s behind those along with the continuously increasing interest rates.
When looking back at the past 50 years or so, interest rates are not that high. We’ve all become so accustomed to low rates that some business decisions have been made that probably didn’t exercise proper discipline. The increasing rates should pull people back into make more disciplined choices.
Banks that have run into the biggest problems recently have been mostly involved in tech and crypto, so a lot of people are assuming it’s just banks invested in those industries that are in danger. In reality, banks in almost all industries that invested in long-term debt vehicles at low rates are struggling as rates go up.
There are a lot of banks out there that are facing difficult situations because they want to unload these low interest rate bonds and get into vehicles of higher return, which creates liquidity issues in the short-term. This is because they must offer to sell their bonds at a discounted rate in order to make them worthwhile for a buyer.
It’s crucial to understand the position of the bank you’re dealing with. How are they invested? Be sure to ask questions to the right people. Additionally, remember that if you’re taking on debt, you need to be very diligent when analyzing the opportunity. It’s a real possibility that rates continue to rise, and your business shouldn’t live or die by 1-2% increases.
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