After the most volatile interest rate cycle in a generation — from near-zero in 2021, up to a 5 percent peak in 2023, and back down through 2024 and 2025 — British Columbia owners finally have something they have lacked for four years: a stable base rate to plan against. The Bank of Canada has held its policy rate at 2.25 percent, leaving it unchanged in its most recent decision rather than cutting further. Stability is itself a planning asset. The question is no longer "where are rates going next month?" but "how do I structure debt and capital deliberately, now that the ground has stopped moving?"
This post lays out how an established BC firm should think about term debt, the fixed-versus-variable decision, and the capital projects that were shelved during the high-rate years — and a worked example of what the difference between rushing and timing a refinance is actually worth.
Why a stable rate changes the planning problem
During the 2022–2023 tightening, every financing decision carried a forecasting bet. Lock in fixed and rates might fall; stay variable and your interest cost could climb another two points before year-end. That uncertainty pushed many owners into paralysis — deferring equipment purchases, rolling working capital on expensive short-term lines, and avoiding term commitments.
A held rate removes most of that bet. With the Bank signalling that future moves are clouded by trade and geopolitical uncertainty rather than a clear easing or tightening path, the central case for 2026 is flat. That does not mean rates cannot move; it means you can build a base-case plan that is not a gamble, and stress-test it for a modest move in either direction rather than betting the business on a direction.
Should you fix or float in 2026?
There is no universal answer, but there is a disciplined way to decide. Ask three questions:
- Can the business absorb a 100–150 bps rise without breaching a covenant or cash floor? If yes, variable remains viable and usually cheaper. If a rise of that size would put you offside, the certainty of fixed is worth paying for.
- How long is the money committed? For short, self-liquidating needs (seasonal inventory, a receivables gap), variable on a line is normally right. For a five-year equipment purchase or a real property acquisition, the case for fixing — and matching the loan term to the asset's life — is much stronger.
- What is the spread between fixed and variable today? When the fixed premium over variable is thin, paying for certainty is cheap insurance. When it is wide, you are buying expensive insurance against a flat-rate base case.
The principle underneath all three: match financing to the purpose and life of the asset. Funding a ten-year asset on a demand line is a structural error regardless of the rate environment; a stable rate just makes the right structure easier to commit to.
Worked example: rushing versus timing a refinance
Consider two BC manufacturers, each carrying a $600,000 term loan taken at the rate peak, each with the loan now eligible to refinance.
Scenario A — Strait Components Ltd. refinanced in a panic at the top. In mid-2023, fearing rates would climb further, Strait locked a five-year fixed term loan at 7.4 percent. The fear was understandable, but the timing was poor: rates subsequently fell. On $600,000, annual interest at 7.4 percent is about $44,400. Strait is now contractually committed, and breaking the fixed term to refinance lower would trigger an interest-rate-differential penalty that erodes much of the saving.
Scenario B — Inlet Machining Inc. waited for stability and refinanced into it. Inlet kept its loan on a variable basis through the volatile period, accepting some interim cost, and refinanced into a five-year fixed term in early 2026 once the Bank's rate had settled at 2.25 percent — securing, say, 5.2 percent. On $600,000, annual interest is about $31,200.
The gap is roughly $13,200 per year, or about $66,000 over the five-year term — for two firms with identical loans. Strait's mistake was not the decision to fix; it was fixing into a peak under pressure. Inlet's advantage came from refusing to lock until the rate environment was legible. In a stable-rate year, you are no longer punished for taking the time to structure the decision properly.
What to do with the capital projects you paused
Many BC owners shelved sensible investments during the high-rate years — a second production line, a facility expansion, a software platform, a strategic hire — because the hurdle rate felt impossibly high when borrowing cost 8 to 9 percent all-in. With a stable 2.25 percent base, those projects deserve a fresh look. Re-run each one against the current cost of capital:
- Recalculate the hurdle. A project that failed to clear a 9 percent all-in cost of debt may comfortably clear it at 5 to 6 percent. The investment did not change; the denominator did.
- Prioritize by payback and strategic weight. Rank shelved projects by simple payback period and by how much they reduce future cost or risk (e.g., automation that offsets the rising BC minimum wage, now $18.25 from June 1, 2026).
- Stage commitments. Stability does not mean certainty. Phase larger projects so each tranche of spending is justified by results from the last, preserving optionality if the trade or demand picture deteriorates.
Capital structure: the broader view
Financing strategy is more than the rate on your next loan. Use this calmer environment to step back and look at the whole balance sheet:
- Term out the right balances. If you have been carrying long-lived needs on an operating line, convert them to amortizing term debt so your line is free for its real purpose — short-term working capital swings.
- Right-size your operating line. Negotiate a facility that covers your genuine peak seasonal need with headroom, rather than running it perpetually near the limit, which signals stress to your lender and leaves no buffer for shocks.
- Build a covenant cushion. Even in a stable environment, tariff and demand uncertainty persists. Aim to operate comfortably inside debt-service-coverage and leverage covenants, not at their edge.
- Keep a liquidity reserve. A stable rate makes it cheaper to hold a cash buffer; the carrying cost of insurance against a bad quarter has rarely been lower.
Key takeaways
- The Bank of Canada has held the policy rate at 2.25 percent, giving BC owners a stable base to plan against rather than a moving target to bet on.
- Decide fixed versus variable by asset life, covenant headroom, and the fixed premium — not by guessing the next rate move.
- Re-run shelved capital projects against today's lower cost of capital; many that failed at peak rates now clear the hurdle.
- Term out long-lived balances, right-size your operating line, and keep covenant and liquidity cushions intact despite the calmer backdrop.
- The peak-rate lesson stands: structure decisions deliberately rather than locking in under pressure.
Stability is not an invitation to relax your financing discipline — it is the rare window to apply it without a forecast hanging over every decision.
If you want your debt structure and shelved capital projects re-modelled against a 2.25 percent base, RN Canada's advisory team partners with BC owners as fractional CFO support to set financing strategy with a steady hand.