If you signed your loans when money was nearly free, your debt is no longer the debt you agreed to. Through 2022 the Bank of Canada has raised its overnight rate at an unusual pace — from 0.25 per cent at the start of the year to 3.25 per cent in early September, with another increase widely expected this month. Every variable-rate dollar a British Columbia business owes now costs meaningfully more to service than it did in January, and that change flows straight through to cash flow and covenants. The question for owners this autumn is not whether to react, but how — and the right answer is rarely "do nothing and hope rates fall."
This post is a practical framework for established BC firms carrying real debt: lines of credit, term loans, equipment finance, commercial mortgages. We will look at how to assess your exposure, the restructuring options available, and how to decide which lever to pull first.
How exposed is your business to rising rates?
Before restructuring anything, map your debt. List every facility and capture, for each: the balance, whether the rate is fixed or variable, the spread over prime, the maturity date, the repayment schedule, and any covenants. This single page is the most valuable document you can produce this quarter, because it tells you exactly where the pain is concentrated.
Then run a stress test. Take your variable-rate balances and model the added annual interest if rates rise another 0.75 to 1.50 percentage points from here — entirely plausible given the Bank of Canada's stated stance. The output is the cash that will leave your business over the next year if you do nothing.
A worked example: the cost of standing still
Consider Okanagan Trades Group, a hypothetical BC contractor carrying $1.2 million of debt: an $800,000 variable-rate operating and equipment facility, and a $400,000 fixed-rate term loan.
Scenario A — Leave it variable. At the start of 2022 the variable facility was priced around 3.0 per cent, costing about $24,000 a year in interest. By the time prime has fully repriced to the autumn 2022 environment, that same facility costs roughly 6.0 per cent — about $48,000 a year. If rates climb a further point, it approaches $56,000. The fixed term loan is unchanged. Annual interest on the variable piece has more than doubled, and most of that increase is permanent until rates ease.
Scenario B — Fix part of the exposure. The owner refinances $500,000 of the variable facility into a five-year fixed term loan locked at, say, 6.2 per cent, leaving $300,000 on the flexible line for genuine working-capital swings. The fixed portion now costs about $31,000 a year regardless of where rates go next, and the business has removed most of the uncertainty from its largest exposure. It pays slightly more than today's floating rate for the privilege — but it has bought predictability, which in a rising market is worth paying for.
The lesson is not that fixing always wins. It is that leaving a large variable balance fully exposed to an actively tightening central bank is a position, not a default — and one you should choose consciously.
What are your restructuring options?
There is no single right move; the toolkit depends on your facilities, your covenants, and your cash flow. The main levers:
- Fix what should be fixed. Convert the permanent core of your borrowing to fixed-rate term debt and reserve floating credit for genuinely short-term needs. This is often the single highest-value move in a rising-rate cycle.
- Refinance and consolidate. Rolling several facilities into one structured term loan can lower your blended rate, simplify covenants, and extend amortization to ease monthly cash demands.
- Extend amortization. Stretching a loan's term reduces the monthly payment and protects liquidity — at the cost of more total interest over time. A liquidity trade, not a cost saving, but sometimes the right one.
- Prioritize paydown of the most expensive, rate-sensitive debt. Spare cash applied to your highest floating-rate balance earns a guaranteed return equal to that rate — frequently better than any other use of cash in 2022.
- Renegotiate covenants proactively. If rising interest expense threatens a debt-service or fixed-charge coverage covenant, talk to your lender before you breach it, not after.
Why your covenants deserve attention now
Covenants are where rising rates can quietly turn into a crisis. Many term loans carry a debt-service coverage ratio (DSCR) or fixed-charge coverage covenant — broadly, the requirement that your operating cash flow covers your debt payments by some margin. As interest expense rises, the denominator of that ratio grows and the cushion shrinks, even if your business performance is unchanged.
Calculate your current coverage and project it forward under your stress-test assumptions. If the trajectory is heading toward a covenant threshold, you have options while you are still onside — restructuring, an amortization extension, an equity injection, a covenant amendment — that largely disappear once you have tripped the covenant and lost negotiating leverage. Lenders respond far better to an owner who arrives early with a plan than to one who arrives late with a problem.
When does fixing a rate make sense — and when does it not?
The decision to fix is not automatic, and getting it wrong in either direction is costly. A few considerations to weigh before you lock in:
- The shape of the curve. When short-term rates have risen sharply, fixed term rates often already price in much of the expected path. You may be paying a premium for certainty that the market has partly anticipated. That is not a reason to avoid fixing — but it means the question is how much certainty is worth to you, not whether fixing is "cheap."
- Your tolerance for payment volatility. A business with thin margins and tight covenants benefits more from predictable payments than a business with comfortable coverage and flexible cash flow. The weaker your buffer, the more valuable certainty becomes.
- Prepayment terms. Fixed-rate term loans frequently carry breakage costs if you repay early. If there is a real chance you will want to pay down or refinance within the term — for example, if you expect a liquidity event or a sale — read those clauses closely before committing.
- The portion, not the whole. Fixing is rarely all-or-nothing. Many owners are best served by fixing the permanent core of their borrowing and leaving a deliberately sized floating tranche for working-capital swings. You capture predictability where it matters most while keeping flexibility where you need it.
The honest framing is that fixing in a rising market is an insurance decision. You are paying a knowable premium to remove an unknowable risk. In late 2022, with a central bank still actively tightening and the timing of any reversal genuinely uncertain, that insurance is reasonably priced for many BC firms — but the right answer is the one that fits your covenants, your cash flow, and your appetite for surprise.
Should you prepay debt instead of investing elsewhere?
In a near-zero-rate world, paying down cheap debt was rarely the best use of cash. In the autumn of 2022, the calculus has flipped. Retiring a floating-rate balance costing 6 per cent or more delivers a certain, risk-free return equal to that rate — and it shrinks your exposure to further hikes. For many BC owners, debt paydown is now genuinely competitive with, or superior to, marginal growth investments whose returns are uncertain. Hold enough liquidity to operate comfortably, then direct surplus cash at the most expensive, most rate-sensitive debt first.
Key takeaways
- Map every facility onto one page — balance, fixed or variable, spread, maturity, covenants — then stress-test your variable balances against a further 0.75 to 1.50 point rise.
- Fixing the permanent core of your borrowing removes uncertainty from your largest exposure; reserve floating credit for genuine short-term needs.
- Consolidation and amortization extensions can protect liquidity, but distinguish a true cost saving from a cash-timing trade.
- Watch your debt-service and coverage covenants closely; renegotiate proactively while you are still onside and hold leverage.
- Paying down expensive floating-rate debt now offers a certain, risk-free return that often beats uncertain growth investments.
Cheap debt forgives a multitude of sins; expensive debt audits them — so restructure before the rate cycle does it for you.
If your loan costs have outrun the assumptions you signed up to, RN Canada can review your debt structure, model your covenants, and help you build a restructuring plan. Reach out to discuss fractional CFO and financing advisory support for your BC business.