Decoding Interest Rates and Their Impact on Business Growth
- Axis Group Ventures
- 13 minutes ago
- 5 min read
Understanding the dynamics of interest rates is crucial for any growth-stage company aiming to optimize its capital structure and unlock liquidity. These rates influence borrowing costs, investment decisions, and overall financial strategy. In this post, we will walk you through the fundamentals of interest rates, their impact on businesses, and practical ways to navigate this complex financial landscape.
The Impact of Interest Rates on Business Strategy
Interest rates play a pivotal role in shaping business strategies, especially for companies backed by venture capital or private equity. When rates rise, borrowing becomes more expensive, which can slow down expansion plans or delay new projects. Conversely, lower rates often encourage investment and growth by reducing the cost of capital.
Higher rates mean higher interest payments, which can strain cash flow and reduce profitability. On the other hand, if rates are low, the same company might seize the opportunity to secure cheaper financing and accelerate growth initiatives.
Key takeaways for businesses:
Monitor interest rate trends regularly to time financing rounds effectively.
Consider fixed-rate debt to hedge against future rate increases.
Maintain flexibility in capital structure to adapt to changing market conditions.
How Interest Rates Influence Capital Markets and Investment
Interest rates are a fundamental driver of capital markets. They influence the cost of capital, which in turn affects investment decisions by both companies and investors. When interest rates are low, investors often seek higher returns in equities and venture capital, fueling growth-stage companies with more accessible funding.
Conversely, rising rates can lead to a shift toward safer assets like bonds, reducing the availability of capital for riskier ventures. This shift can slow down fundraising efforts and increase the cost of equity. Companies must be prepared to adjust their growth strategies accordingly.
Real-World Impact: U.S. Corporates Facing Higher Interest Costs and Refinancing Pressures
In the current “higher-for-longer” interest-rate environment engineered by central banks (with policy rates well above pre-pandemic levels), corporate America is already feeling the squeeze on cost of capital and debt strategies.
A 2024 survey and analysis by CFO Dive/Baringa,¹ many CFOs surveyed described this refinancing challenge as a significant strategic concern — some even likening it to a slower-motion version of past credit crunches. This situation is forcing firms to rethink their capital structure, refinancing cadence, and hedging strategies rather than simply rolling debt over as they did in easy-money years.
Practical advice for navigating capital markets:
Build strong relationships with debt and equity investors to maintain access to capital during rate fluctuations.
Diversify funding sources to reduce dependency on any single market condition.
Focus on clear communication of growth potential and risk management to reassure debt and equity investors.
How Elevated Interest Rates Impact Private Market deal making
Elevated interest rates are reshaping liquidity dynamics across the private markets. Higher discount rates compress valuations and extend exit timelines, delaying IPOs, M&A activity, and sponsor-led realizations. As a result, both companies and investors are reassessing how and when liquidity can realistically be achieved.
Recent reporting highlights that higher-for-longer interest rates are increasing refinancing pressure, slowing traditional exit paths, and forcing companies and investors to manage liquidity over longer holding periods. In response, private market secondary transactions are increasingly used to provide targeted liquidity, rebalance exposure, or extend duration without forcing premature exits or dilutive equity raises.²
In this environment, secondaries are no longer opportunistic tools. They are becoming a strategic component of capital and liquidity planning in a rate-constrained market.
Recent Federal Reserve Signal: Easing Pauses, Uncertainty Persists
At its January 28, 2026 meeting, the Federal Reserve held its benchmark federal funds rate steady at 3.50%–3.75%,³ pausing a streak of three consecutive rate cuts. As the chart above illustrates, this pause comes after one of the most aggressive global tightening cycles in decades—not a return to the low-rate environment that defined the prior decade.
The decision reflects the Fed’s assessment that economic growth remains solid, labor markets are stabilizing, and inflation, while easing, remains above target. The vote was 10–2, with two governors dissenting in favor of a 25 basis point cut, underscoring ongoing debate around the pace of policy easing.
Markets have since pushed expectations for the next potential rate cut, reinforcing a cautious, data-dependent outlook rather than a rapid easing cycle.
For growth-stage companies and private market participants, the takeaway is straightforward: while incremental rate cuts may continue, base rates remain structurally elevated. Capital planning, refinancing decisions, and liquidity strategies should continue to assume a higher-for-longer rate backdrop.
Preparing for the Future: Interest Rates and Sustainable Growth
Looking ahead, interest rates will continue to be a key factor influencing business growth and capital markets. Companies that proactively understand and manage their exposure to rate changes will be better positioned to capitalize on opportunities and mitigate risks.
As floating-rate benchmarks like SOFR remain elevated and refinancing costs rise, growth-stage companies are increasingly required to think beyond traditional debt and equity solutions when managing liquidity, risk, and timing.
In practice, this means:
Conducting scenario analysis to understand the impact of different interest rate environments.
Structuring debt, equity, and liquidity solutions to balance cost, flexibility, and timing.
Engaging with financial experts to tailor strategies that fit unique business needs.
By understanding the nuances of interest rates and their impact on business, we can better navigate the financial landscape. This knowledge is essential for growth-stage companies seeking to optimize capital and drive sustainable expansion.
About Axis Group Ventures
Axis Group Ventures is a boutique investment banking and strategic advisory firm. We focus on global debt placement and private market secondaries for venture- and private equity-backed companies. Our firm partners with founders, CFOs, and investors to provide customized capital solutions in the private markets. We leverage deep experience in private credit and a global network of capital providers. Axis Group Ventures’ mission is to bring greater transparency and alignment to complex financing decisions through disciplined, independent advisory and high-touch execution. For more information, visit www.axisgroupventures.com.
Sources:
CFO Dive. High Interest Rates Saddle Companies With $381 Billion in Extra Costs.CFO Dive, citing Baringa and Federal Reserve analysis.https://www.cfodive.com/news/high-interest-rates-saddle-companies-381-billion-extra-costs-Baringa-Fed-Federal-Reserve-inflation/717291/
The Wall Street Journal. Finance & Markets Coverage.https://www.wsj.com/finance
CNBC. Federal Reserve holds rates steady, pauses streak of cuts. CNBC Markets. https://www.cnbc.com/2026/01/28/fed-rate-decision-january-2026.html
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Disclosures & Disclaimers
This blog post is provided by Axis Group Ventures for informational and educational purposes only. It does not constitute investment, legal, accounting, or tax advice, and should not be relied upon as such. Nothing contained here should be interpreted as an offer to buy or sell any securities. Any actual offer or solicitation will be made exclusively through formal documentation provided by the relevant issuer or seller.
Axis Group Ventures is not a registered broker-dealer and does not execute, negotiate, or recommend the purchase or sale of securities. Any introductions or private-market support provided by Axis Group Ventures are conducted strictly in an advisory and consulting capacity. Readers should conduct their own due diligence and consult qualified professionals before making any financial decisions.
Investments in private securities involve significant risks, including the potential loss of the entire investment, and are typically illiquid. Past performance does not guarantee future results.
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