Valley First

Small Businesses Must Dance to Loonie’s Tune

Devalued dollar a new norm for business owners
July 3, 2014

Penticton, B.C.—With now more than six months of a lower Canadian dollar in the marketplace, it appears a weaker loonie is here to stay for some time, even despite its recent rally. Financial pundits have taken the Bank of Canada’s latest hold on the overnight lending rate as a commitment to keep the dollar from soaring to the levels of the past several years. Small business owners must now come to terms with the new reality of a weaker currency.

“The wait-and-see period is likely over,” says Craig Phillips, a commercial account manager at Valley First. “Small businesses that benefit from a higher dollar and were hoping for a rebound aren’t likely to see it.”

With the loonie sitting easily below parity against the U.S. greenback, making medium- to long-term adjustments appears to be in order for small business owners.

“Businesses can consider re-evaluating their sourcing costs,” Phillips says. “Purchasing domestic goods, materials or equipment may now be more cost-effective.”

If purchasing domestically is not an option, other approaches can also help offset the lower purchasing power of the dollar internationally.

“Some reports suggest the dollar will dip to the mid-80 cents level, so it may be cost-effective to consider fixing costs using securitized products,” says Phillips. “A licensed securities advisor could help explore futures contracts and options to fix a business’ currency exchange rate for a period of time.”

As the loonie hangs out below parity with the U.S. dollar, interest rates, by correlation, look poised to remain low for the short term, making borrowing attractive.

“Low interest rates are certainly an upside, especially for those needing financing to grow their business,” Phillips says. “But if you’re borrowing, be sensible and make sure your cash flow can survive a one to two percent interest rate increase. When rates do change, it could happen fast.”

About Valley First

Valley First is a division of First West Credit Union, B.C.'s third-largest credit union, with 38 branches and 29 insurance offices throughout the province operating under the Valley First, Envision Financial and Enderby & District Financial brands. Led by Launi Skinner, First West has $7.7 billion in assets under administration, more than 177,000 members and close to 1,300 employees.

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