Interest rates are historically low in Canada. Prime sits comfortably at 3.0% and it’s possible to acquire a 3-year residential mortgage at a rate under 3.0%! Today, commercial lending rates typically range between 4.0% and 6.5% compared to over 15% some thirty odd years ago.
We all know what low interest rates mean in the residential market, but what about the commercial sector? As a business owner, how can you benefit from the Bank of Canada’s current prime lending rate?
If you’re considering a sale, now may be the perfect time.
Timing the sale of a business is an impossible decision. Not only must you consider a myriad of personal factors that may influence your choice, but you want to make sure you sell at a time when you’ll be able to profit the most from an asset you’ve worked so hard to build over the years.
If the sale of your business looms in the near future, perhaps Canada’s record low interest rates will give you a nudge in the right direction.
Low interest rates can increase your company’s value.
For the time being, low interest rates play a large contributory factor in the likelihood that your company is worth more today than it might be in the future when rates eventually rise again.
How is this so?
Low interest rates create increased cash flow in a leveraged purchase, and this translates into higher selling prices for assets. In other words, low interest rates mean that buyers are servicing debt at a lower cost of borrowing, which gives them the ability to borrow more than they otherwise would have.
You’re in a position to maximize the returns on your company sale.
When buyers can afford to service more debt, you can afford to profit the most from the sale of your business. By capitalizing on low interest rates today and putting your company on the market, you can take advantage of greater flexibility in the sales process.
Buyers are able to pay more, which means you’re able to profit more. And, it’s likely that you’ll sell faster without going through the tedious and discouraging process of watching your company sit on the market for too long.
Interested in selling? Low interest rates aren’t all you should be concerned about. Make sure you have a good succession plan in place.