Looming interest rises: what does it mean for businesses?

Last post: Oct 21, 2021

It is now widely expected that the Bank of England interest rate will rise before the end of the year, with further increases earmarked for February and August. The cumulative effect will result in interest rates reaching 0.75% by the end of 2022. While this is still low and the increases are small, the impact on businesses can be significant - particularly against the backdrop of the pandemic and Brexit.

So what should businesses be looking out for?

Many businesses are relying on their overdraft and commercial credit card particularly off the back of the difficult 18 months we have behind us.

Choice Business Loans director Sharon Cook points out that the rates on these are likely to follow hot on the heels of the Bank of England interest rises.

She said: "It is a good idea to review your current finance solutions now and consider how even a small interest rate increase may impact your monthly outgoings.

"Another secondary effect from interest rate rises is likely to be increasingly stringent loan criteria – so even though many business loan products are not linked to the base rate, all in all if you have plans to apply for a loan in the near future it may well be worthwhile to do this sooner rather than later."

Investment manager Doug Heseltine from Business Enterprise Fund echoed the importance of businesses taking stock of any existing loan facilities they may have.

He said: "It is important for all borrowers to be aware of  whether loans they already have or are about to sign are on a fixed or variable rate.  If they are on the latter, you should consider what a rate increase would mean to your repayments – and whether that is something that your business can still afford.

"Whilst a modest increase will not cause large jumps in repayments, it is worthwhile considering nonetheless - particularly if the business has several variable rate loans.

"We always recommend that customers regularly produce forecasts to establish whether the business can withstand a reduction in sales or increased costs - and whether any additional costs can be passed onto the consumer or whether they will have to be incorporated with a resulting reduction in margins. "

Businesses with property will also need to consider their mortgage arrangements. 

Flackwell Financial Limited director Philip Stebbings said: "A rise in interest rates will mean higher interest rates for any borrowers that have been unable to secure a fixed deal during this lowest rate period we have ever experienced.

"Some borrowers have considered paying early repayment penalties on their current mortgage to move rates but this is can be very costly and it is sensible to get advice before considering making such a switch."

Stebbings added a word of caution on savings too: "A rise in interest rates may sound like good news for savers but with inflation approaching 4% savings rates with even with a small increase in savers rates this will still leave savers without any real return on their money."

With all this in mind the key take-away for businesses is to diligently review current finance arrangement and keep on top of forecasts.

If you need advice on how to manage your cashflow, on refinancing or getting a new  business loan, the friendly Choice Business Loans team is here to help – give us a call on 01494 410 125.