Sovereign Finance unveils smart strategies to navigate high rates

As businesses face soaring interest rates, securing loans has become a more complex challenge in today’s economic landscape.

As a result, Sovereign Finance Company Limited has revealed smart borrowing strategies to navigate high interest rates.

The company hosted a webinar titled, ‘Rising the Tide: Smart Borrowing Amidst High Interest Rates,’ where experts shared practical strategies to help businesses not only survive but thrive. Key industry leaders, including Olatunji Esan, chief operating officer, and Anthony Kumba, head of credit and commercial, offered valuable insights into managing the financial burden of high borrowing costs while maintaining a healthy cash flow.

Olatunji Esan, chief operating officer of the company, noted, “One notable impact of high-interest rates is the reduction in borrowing capacity.” With benchmark interest rates jumping from 18.75 percent to 27.25 percent in a year, companies are grappling with soaring interest expenses. Yet, Esan highlighted that businesses can succeed by ‘borrowing strategically.’

Esan emphasised that in a high-interest-rate environment, companies should prioritise investments that yield returns exceeding the cost of borrowing. Using real estate as an example, he explained how prime property investments can offer returns that outpace inflation and the cost of loans, making them smart borrowing choices.

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“Strategic borrowing also aids in cash flow management,” he added. Companies delivering goods to supermarkets, for instance, might take loans to bridge the gap between delivery and payment, ensuring smooth operations.

Another tip discussed was debt consolidation, which helps to reduce overall repayment amounts. Debt consolidation allows businesses to combine multiple debts into a single loan or payment plan, simplifying management and potentially lowering interest expenses.

Anthony Kumba, head of credit and commercial at Sovereign Finance, also provided key risk management strategies for borrowing. He outlined risks such as credit, currency, liquidity, and operational risks, offering actionable strategies to mitigate these challenges.

“For borrowers, it’s crucial to ensure that any asset used as collateral can be liquidated if needed to cover loan payments,” Kumba explained. He also recommended opting for variable or adjustable interest rates for long-term projects, allowing companies to restructure or refinance their loans if necessary.

Kumba stressed the importance of maintaining a strong credit history, noting that it is critical for future loan accessibility. His presentation underscored the need for a robust risk management strategy, which may include insurance to cover unexpected events like fires or other disasters that could disrupt business operations.