Business Finance Post Election – Now What?

“Now that the Canadian Federal Election of 2011 Is Out Of The Way, How Will The Results Impact Business Finance?”

Ok, last week, everyone, including myself, was saying that without a conservative majority or a workable form of government coming out of the election, that the economic sky in Canada was going to fall.

So the conservatives won a majority, and the sky is still above us … now what?

That’s the great and frustrating thing about the world of business financing.  Once you have quantified or removed the potential adverse effects of one variable, another dozen or more are ready to take their place.

Just look at this week.

Everyone is speaking positive of the outcome of the election from an economic stability point of view.

But, we still have an economy that is over heating and heavily driven by commodities that are currently on the down stroke.

The Canadian dollar is being pushed down by the commodity markets, but for those needing to hold AAA bonds, Canada and Australia are the best bets which should be positive for the dollar.

The bond market is currently dipping down, but its not expected to last too long either.

So Where Is The Business Financing
Market Headed?

In many ways, we are back to the pre election status quo where the Bank of Canada is still going to react to inflation in the near term and will likely keep increasing rates until they see a balancing out of inflation and a stabilizing of the level the dollar is trading at.

Banks and institutional lenders are more likely to continue loosening their purse strings with a conservative majority compared to a less appealing alternative.

So capital should continue to be available at very good rates, but be prepared for it to be some work to secure and also factor in that the cost of money is likely going to be higher as the year goes along.

For project financing with a payback of less than 10 years, fixed interest rates may provide a greater appeal and hedge against interest rate increases as well.

Being that most working capital is priced with variable rates, expect the cost of operating funds to be going up.

At the present time, these trends appear to be fairly clear (at least for the moment). If we had not elected a Conservative majority, the near term projections would likely be very similar, but all bets would be off for the mid and long term period.

All in all, we came out of the election process about as good as anyone could expect or rely on.

This certainly doesn’t solve all problems or remove all risks related to business financing, but it does take some of the noise out the market and allows us to get back to focusing on market driven variables versus politician driven ones.

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About the Author Brent Finlay