What are interest rates and why do they cause layoffs, drop in startup funding, when they rise?

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Lately I have been seeing that the rising interest rates are the cause for major tech layoffs and also for the drop in Startup Funding (not including AI). But I cannot grasp why that happens and the effects

In: Economics

2 Answers

Anonymous 0 Comments

Interest rates are the cost to borrow money….

Most businesses have debt; starting new divisions, product lines, offices, shelf space, advertising all costs money.  Businesses get a loan and then pay back the loan with future sales/earnings

If you get a 10 million loan at 2% the total repayment is a lot less than 10million at 5%

Loans can also be adjustable….so maybe you initiated that 10m loan at 2% back in 2019…but it now is 5%.  You have to find the difference in those repayments; if the sales also slow you have to reduce costs

Anonymous 0 Comments

They are the extra percentage of money you have to pay back when getting a loan.

You can think of it as “the price of borrowing money”.

If this price, the interest rates are high, companies, investors and people are going to be more hesitant of taking out a loan or take out smaller loans, so extra employees or some other investment they planned on covering with a loan, get canned.