Rashaan Baskerville
Reduce Your Interest Expense While Rates Are High
BIO :
Rashaan Baskerville , Senior Director of Angus Finance , has nearly two decades of experience in the financial services and energy services fields . In his role as a fractional CFO for the fuel distribution industry , he helps dealers develop and implement business growth strategies . He can be reached at rbaskerville @ angusenergy . com .
Has your interest expense skyrocketed since the Fed started raising interest rates over the last two years ? If so , you may have a rare opportunity to reduce your interest expenses significantly while there is a strange phenomenon taking place in the interest rate markets . This odd situation occurs when longer-term interest rates are lower than shorter-term interest rates .
In the last 34 years , since January 1990 , this situation has happened only 9 % of the time . However , when we see this type of market rate shift , it can be a slight shift or a more significant shift . In this case , the level of the discrepancy that we have seen take place in 2023 , and is still active as of December 2023 , has not been seen since 1981 . In fact , since 1990 , this level of discrepancy has occurred just 1 % of the time ( see the image below showing how this rate structure has developed over the last three years ).
quality , etc .). Even if your financial performance has declined , refinancing may allow you to reduce monthly payments .
• Currently using a non-traditional funding source such as SBA financing or other highinterest debt – if you have an SBA loan with higher rates and collateral requirements , you may want to transition to a traditional loan to reduce your expenses and free up some of your assets for other uses .
• Working capital imbalance – if your balance sheet shows that your current liabilities are greater than your current assets , you may be able to improve cash flow by extending the term on short-term debt liabilities .
• Additional assets available for collateral – perhaps you have paid off your mortgage but have
WHAT DOES THIS MEAN FOR ME ?
For you as a fuel dealer , this means that , if you have short-term debt , like a line of credit , with a variable interest rate that has jumped to much higher levels , you may be able to reduce your interest expense while rates remain high . One of my clients who is looking to take advantage of this rate flip has already started the process and we are estimating that they could potentially save about $ 100,000 over the next five years on what would have been over $ 500,000 of interest . This would be a savings of more than 20 %. Your individual situation will vary so be sure to consult with your financial advisor to make an informed decision .
WHO CAN BENEFIT THE MOST ?
Here are some of the key indicators of businesses that can benefit from refinancing variable rate debt :
• Change in financial circumstances – you may qualify for better terms based upon changes to your business since the last time your bank evaluated your needs ( larger asset base , improved operating performance , improved collateral been maintaining a significant balance on your line of credit or other short-term debt . Depending on your annual interest expense , it may make sense from a cash flow and cost reduction perspective to use the equity in your property to pay down your short-term debt . Keep in mind that more than one of the above factors may apply to your business , which increases the potential for your business to benefit from refinancing in the current interest rate environment ( shown as overlapping areas in the diagram below ).
Continued on pg . 22 .
20 JANUARY 2024 | FUEL OIL NEWS | www . fueloilnews . com