Rising interest rates that add cost to a debt-heavy business has led to a re-appraisal of the typical model of buying a business and maximising debt. That was a feature of the low interest rate environment of the last ten years, and now the cycle has turned.

Many of you reading this may say “it’s about time” and I sympathise. Relying on debt-loading to do the financial heavy lifting in a thinly capitalised structure has always been a delicate approach. It required benign if not positive economic backdrop, low inflation and accommodating lenders.

So as the inflation cycle peaks and the end of interest rate rises are approaching the summit, and let’s hope, start falling in 2024, where are we?

Well one thing I have learnt in my career is that economic cycles always last longer than you think. It is the lead and lag effect as reality works through the system. There are arguments that cycles will react more quickly in our better-connected world, but let’s see.

In the debt markets it is my expectation that lenders will remain cautious: putting more reliance on lower leveraged structures, supporting repeat-customer business models, and offering consistent appetite for reasonable loan to value asset finance proposals.

When you see Goldman Sachs saying “financing for M&A is there, but it’s a much [higher] cost and not available for all” allied to cutting their staffing numbers, it’s a pretty good indication of where the market is.

The same thinking is apparent in the SME sector, and funding requires a back to basics approach – good management teams, good businesses, good advisors and good lenders = the right combination.