Interest Rates
Credit is the money borrowed from a creditor such as a bank. Many small businesses reply on credit such as bank loans to assist in financing their business activities.
Interest is the reward for lending and the cost of borrowing. The interest rate is the percentage rate charged on a loan or paid on savings.
An increase in interest rates can affect a business in two ways such as:
· Customers with debts have a lower income to exploit because they are paying more interest to lenders this means that business sales will fall as a result.
· Firms with overdrafts will have higher costs as they have to pay more interest.
The impact of a change in interest rates varies from different businesses. Firms that make luxury goods are the worst to be negatively affected when interest rates rise. This is because most customers cut back on non-vital goods and services when their incomes fall as a result of an increase in interest rates.
Interest is the reward for lending and the cost of borrowing. The interest rate is the percentage rate charged on a loan or paid on savings.
An increase in interest rates can affect a business in two ways such as:
· Customers with debts have a lower income to exploit because they are paying more interest to lenders this means that business sales will fall as a result.
· Firms with overdrafts will have higher costs as they have to pay more interest.
The impact of a change in interest rates varies from different businesses. Firms that make luxury goods are the worst to be negatively affected when interest rates rise. This is because most customers cut back on non-vital goods and services when their incomes fall as a result of an increase in interest rates.