The growth of interest rates and what to do about it

Since we joined the Eurozone, we have been enjoying much more affordable interest rates in Portugal.

So much more affordable that, from time to time, we forget that the money banks lend us is not ours.

In this context of the growth of indexing rates, it is fundamental to:

• choose well the banks we work with, trying to opt for the most reasonable and balanced ones when it comes to demanding spreads. It is not always easy, and it is necessary to know the right ones.

• negotiate ongoing financing contracts, trying to recover in the spread part of what the indexing factors have worsened. Note that depending on how the bank finances you, it is not immediate to say that the bank makes all the money that comes from the growth in indexing factors. Still, in our experience, if you have a responsible track record at this time, it is more likely that the bank can help.

• Being particularly judicious in the management of operational cash flows, which obviously have to be positive: what I receive from clients has to be enough for operational expenses (people, suppliers, state) and still has to be enough to pay interest and some of the bank debt I have accumulated.

• It is time to be more judicious in investments, which have to have a clear, tangible, and strategic return.

• And no, let’s not set fixed interest rates now because they will not be growing ad eternum.

These above principles seem clear and easy to systematize. We have some difficulty understanding why they are systematically ignored. 

We continue to see tourism promoters hanging on debt, designing pharaonic projects with lyrical revenue assumptions, sometimes with a totally speculative intention.

It is important that we all convince ourselves that the time for “houses of cards” is gone. And it will be difficult to see it coming back any time soon.