Borrowing money in Canada has rarely been cheaper than it is right now. The Bank of Canada is holding its policy rate at 0.25% — the effective lower bound — and has signalled it intends to keep it there until the economy has durably recovered. For an established British Columbia business with a solid balance sheet, that is not merely background noise; it is a financing window. The right move in 2021 is not to borrow recklessly, but to deliberately restructure expensive debt, term out short-term obligations, and fund genuinely productive working capital while the cost of capital is historically low. This playbook explains how to act on the opportunity without overreaching.
Why does the 0.25% policy rate matter to your business?
The Bank of Canada's overnight rate anchors the prime rate that your bank uses to price most commercial lending. When the policy rate sits at the floor, commercial prime sits near its own historic low, and the variable-rate facilities most BC businesses rely on — operating lines, demand loans, equipment financing priced at "prime plus a margin" — are correspondingly cheap.
Two things follow. First, the spread between cheap variable debt and expensive legacy debt is wide, which makes refinancing unusually attractive. Second, low rates will not last forever; the Bank has been explicit that the floor is conditional on the recovery. That combination — cheap now, normalizing eventually — is exactly the environment in which a disciplined owner restructures.
What should you actually do while rates are this low?
Think in terms of three deliberate moves, in order of priority:
- Refinance or consolidate high-cost debt. Credit-card balances, supplier financing carried past terms, old equipment loans, and merchant cash advances are almost always priced far above prime. Rolling them into a term loan or a properly structured line of credit at today's rates can cut the interest cost dramatically.
- Term out chronic short-term borrowing. If your operating line is permanently drawn — never returning to zero — that is not working capital, it is disguised long-term debt sitting at a variable rate. Convert the "hardcore" portion of the line into a term loan so you lock in repayment and free up the line for its real purpose.
- Fund productive working capital, not losses. Cheap money should finance assets that generate a return — inventory that turns, receivables tied to real sales, equipment that lifts capacity. It should never quietly subsidize an unprofitable operation; low rates make bad economics survive longer, not improve.
A worked example: the cost of leaving expensive debt in place
Consider a Victoria-based distribution business carrying three balances as it enters the year:
- A $120,000 equipment loan from 2018 at 8.5%.
- $60,000 revolving on business credit cards at 19.9%.
- An operating line that is permanently drawn by about $90,000, priced at prime plus 1.5% (call it roughly 4% today).
Scenario A — leave the structure as-is. Annual interest runs about $10,200 on the equipment loan, $11,940 on the cards, and $3,600 on the hardcore portion of the line — roughly $25,740 a year, much of it at rates wildly above today's cost of money.
Scenario B — restructure into one term facility. The owner consolidates the equipment loan and the credit-card balances, and terms out the permanently-drawn $90,000, into a single $270,000 term loan at, say, 4.5%. Annual interest falls to about $12,150 — a saving of roughly $13,590 per year. The operating line is repaid back to zero and restored as genuine standby liquidity for seasonal swings. Same total debt, vastly cheaper carrying cost, and a cleaner balance sheet that a lender will look on more favourably when the firm next needs capital.
That $13,590 is not a one-time gain — it recurs every year the structure stays in place, and it is pure margin. For a distributor running on, say, a 6% net margin, $13,590 of saved interest is the equivalent of generating an extra $226,000 of sales. You will not find a faster return anywhere in the business than fixing an inefficient debt stack while rates are at the floor.
Should you fix your rate or stay variable?
This is the question every BC owner is rightly asking in a near-zero environment, and the honest answer is: it depends on how much volatility your business can absorb.
- Stay variable if your debt is modest relative to cash flow, you can repay it quickly, and a one- or two-point rate rise would be a nuisance rather than a threat. You capture today's low cost and retain flexibility to prepay.
- Fix (or term out at a fixed rate) if the debt is structural, long-lived, and large enough that a future rate increase would genuinely strain your coverage. Locking a fixed rate now, near the bottom of the cycle, converts an uncertain future expense into a known one — and certainty has real value in a forecast.
In my experience, the owners who get caught out are not the ones who chose wrong between fixed and variable; they are the ones who never made a deliberate choice at all and simply let legacy structures ride. Decide on purpose.
How does cheap financing interact with your CRA obligations?
A practical aside that catches established firms: low rates do not change the discipline of paying the CRA on time. Interest the CRA charges on overdue corporate balances and late instalments is set by a prescribed rate and is non-deductible — and it is typically higher than the bank financing available to you. So if you are ever choosing between drawing on a cheap line to pay the CRA on time versus letting a corporate balance go into arrears, the arithmetic almost always favours using the cheap bank money and keeping the CRA current. Do not let an avoidable, non-deductible interest charge accumulate while inexpensive credit sits unused.
How should you position your balance sheet for when rates eventually rise?
The Bank of Canada has been clear that the floor is conditional, not permanent — it will hold until the recovery is durable, and then it will normalize. A disciplined owner uses the low-rate window not just to save interest today, but to build resilience for the tightening that will eventually come. Three positioning moves matter.
First, extend the maturity of debt you intend to keep. If you have a structural, long-lived borrowing need, locking a longer term now near the bottom of the cycle protects you from refinancing into a higher-rate environment in two or three years. Refinancing risk — the risk that your loan comes due exactly when rates have climbed — is real, and it is cheapest to neutralize while rates are low.
Second, strengthen your coverage ratios while it is easy. Lenders watch your debt-service coverage — roughly, how comfortably your cash flow covers your loan payments. At today's low rates that ratio looks healthy almost automatically, which is precisely the moment to negotiate covenants, raise your facility limits, and establish standby credit you may not need yet. Arranging credit is far easier when you do not urgently need it; secure the headroom now so it is in place if conditions tighten.
Third, stress-test your structure against a rate rise before you commit. Before adding variable debt, model what your payments look like if the policy rate rose by one or two points. If a two-point increase would strain your coverage, that debt belongs at a fixed rate or should be smaller. Running the stress test now — while it is a hypothetical — is how you avoid discovering the answer the hard way later. The goal is not to predict the exact timing of the next move; it is to make sure your balance sheet survives it comfortably regardless of when it comes.
Key takeaways
- The Bank of Canada is holding at 0.25%, the effective lower bound, keeping commercial prime near historic lows — a deliberate financing window for solid BC businesses.
- Refinance high-cost debt first: credit cards, old equipment loans, and overdue supplier financing are priced far above today's prime.
- Term out permanently-drawn operating lines so a variable, open-ended balance becomes structured, repayable debt and the line is freed for true liquidity.
- Use cheap money to fund productive assets, not losses — low rates extend the life of bad economics rather than fixing them.
- Choose fixed versus variable on purpose, and keep the CRA current since its non-deductible arrears interest usually exceeds your bank cost.
Cheap capital is an opportunity, not a strategy — it rewards the owner who restructures with intent and punishes the one who simply borrows more of the same. Use the low tide to repair the hull, not to sail further from shore.
If you want a clear-eyed review of your debt structure and a plan to refinance while rates sit at the floor, RN Canada's advisory team can model the savings and help you approach your lender from a position of strength. Talk to us about fractional CFO support and let us turn today's low rates into a permanently lower cost of capital.