What If Interest Rates Doubled?

Joe Panettieri, Former Editorial Director

September 25, 2008

1 Min Read
What If Interest Rates Doubled?

Managed service providers are feeling pretty darn good about their business prospects. And many pundits say MSPs are immune to the economic slowdown.

But remember: Not even the best-run companies are safe from the current credit crunch. A case in point: Look at how the credit crunch has impacted Caterpillar, the big, highly profitable industrial machine maker.

According to the Nightly Business Report:

“… industrial giant Caterpillar (CAT) announced a new bond issue at an interest rate roughly double what it would have had to offer just six weeks ago.”

Or as The Age (an Australian publication) put it:

“The prospect for companies needing to raise money by issuing corporate debt is sketchy at this point. On Tuesday, the finance arm of Caterpillar Inc. was able to raise $US1.25 billion ($A1.5 billion) by selling corporate debt–but the company had to pay the highest yields in nearly 10 years.”

Now consider this: During its Q2 of 2008, Caterpillar reported “all time records for sales and revenues and profits per share,” according to a company press release issued on July 22.

Translation: The company is doing great — yet Caterpillar faces inflated interest rates because of the credit crunch.

Ultimately, the credit crunch will spill over from Wall Street onto Main Street, U.S.A. If credit doesn’t start flowing more easily between lenders, it will become more difficult for small MSPs and VARs to borrow money at reasonable rates in the months ahead.

I don’t want to sound too darn negative about the economy. And I realize MSPs have ideal business models to ride out the economic storm. But don’t let anyone tell you MSPs are “completely” safe from the fallout.

They’re not.

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About the Author(s)

Joe Panettieri

Former Editorial Director, Nine Lives Media, a division of Penton Media

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