How Rising Interest Rates Can Help Certain Businesses

The spike in interest rates isn’t all bad, though. As the cost of borrowing money increases, rising interest rates can be beneficial for certain types of businesses.

For example, businesses that are in fields typically considered “safe” may benefit from rising interest rates if they have a large amount of capital or cash investments. These businesses may see their returns on investment increase as the value of their investments rise.

Here are a few other instances where higher interest rates can be beneficial.

Businesses With Floats When interest rates rise, interest income for banks and institutions increases in turn. As such, a higher float could lead to greater returns when interest rates go up. Not only that, but it can also help them expand their business at a time when competitors are having trouble keeping up.

Businesses With Negative Working Capital Likewise, businesses with negative working capital typically benefit from increasing interest rates as the negative working capital (a.k.a. excess cash on the balance sheet) earns a return. As a result, these businesses typically have more resources at their disposal for internal investment needs and other operational objectives. A good example of this is Booking.com or Expedia, which benefit from customers paying for vacations in advance.

Businesses With Positive Cash Flow Businesses with positive cash flow can potentially benefit when interest rates rise because they can invest their positive cash flow into higher-yielding securities.

When the general interest rate in the market increases, businesses with positive cash flow can use this surplus capital to buy securities and investments that pay a higher return than before, allowing them to further increase their positive cash flow as well as maintain liquidity.

In general, by having positive cash flow, companies can have increased flexibility when it comes to dealing with potentially challenging economic conditions due to access to a greater variety of investment options that provide higher returns.