What Effect Do Interest Rates Have On Business Value?

Interest rates can have a significant impact on the value of a business, particularly in cases where debt is involved in the purchasing process. When rates rise, business purchasers may find it more challenging to secure the necessary funding to acquire. Ultimately, the amount of debt that lenders are willing to approve is reduced. As a consequence, buyers will either need to increase their cash injection or decrease their offer. Average values tend to decrease at a broad level - however, not all buyers will decrease their offers as a result.

How large is the effect? As an example, let's assume the following terms:

• A company generates an annual EBITDA of $1,000,000
• $4,000,000 in debt to be financed