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How Rising Interest Rates Might Impact Your Business 

Rising interest rates

Many businesses were hoping that the economic climate would settle following a few turbulent years during the Covid-19 pandemic. However, it seems that the UK economy is set for a prolonged period of difficulty. In a bid to halt rising inflation, the Bank of England has increased interest rates consistently over the past 18 months, with an ongoing threat of further rises over the coming months. We look at how rising interest rates might impact your business in both a positive and negative way. 

Interest Rate Recent History 

Due to cheap credit, subprime mortgages, and poor lending standings in 2008, there was a worldwide economic crash. This resulted in interest rates being quickly slashed in the UK and globally. Prior to 2008 interest rates were held steady at around 5% for the past 10 years. However, over the period April 2008 – Mar 2009 they were cut from 5% to just 0.5%, where they stayed until August 2016. 

Slight fluctuations occurred over the next four years, but rates remained historically low. In response to the Covid-19 pandemic rates were cut to just 0.1% in March 2020. As we have emerged from that crisis, and the war between Russia and Ukraine has taken hold prices and therefore, inflation have soared. To try and rebalance the economy and avoid recession the Bank of England has steadily increased the base rate since December 2021, with the most recent rise to 5% on 22nd June 2023. 

Interest Rates and Business 

How does increased interest rates affect business? Depending on the nature of the business and its financial fortune increasing rates can have a negative or positive impact. However, it is likely that more business will be negatively impacted than positively. The three main areas where interest rates may affect a business are: 

  • Increased cost of borrowing
  • Reduced sales
  • Increased savings rates

Increased Cost Of Borrowing

Commercial finance lending rates are intrinsically linked to the Bank of England base rate. Anyone needing to take out finance today will pay more in interest than they did for the same loan five years ago, and due to financial uncertainty lending criteria may be stricter and there may be less available products. An experienced commercial finance broker will be able to advise whether a particular product is viable for your business and help you to secure the best possible deal. Contact MC Commercial Finance for expert advice. 

For businesses that already have commercial finance in place, these loans are often on a fixed interest rate meaning that they won’t be immediately impacted by rate rises. However, for those with deals that are ending but will require further finance the jump in repayments or ability to secure a loan may have a very negative impact on the business. 

Reduced Sales

Every organisation has its own challenges; however, it is not just business that is struggling. There is a cost-of-living crisis ongoing affecting large proportions of average people in the UK. This crisis is due to lower wage inflation in comparison the rising cost of everyday essentials including fuel and food. This in turn means less disposable income and spending within the economy.

As people are forced to cut back there is a knock-on effect on many businesses. For example, if people eat out less it is not just the restaurant that suffers, it is their staff and all their spending, it is the food and beverage manufacturers and their staff, the transport companies and their staff, all the staff at all of these companies spend less, the impact is spread far and wide.  

Higher Savings Rates

For any business that has large cash reserves, and is not reliant on commercial finance, then increasing interest rates are good news. Historically low interest rates have meant little motivation both in the business and personal sectors to save. High interest rates also transfer to better rates for savers, meaning that for any business with cash reserves their fortunes are improved. Of course, businesses with large cash reserves are few and far between following years of uncertainty and many organisations having to dip into savings to cover the cost of prolonged shutdowns during the pandemic. 

Utilising a Broker to Support Your Business

Now, more than ever, if your business needs commercial finance, it is imperative to seek expert advice. Taking out the wrong type of finance or paying more than necessary could have a devastating effect to the long-term fortunes of the organisation. Even in 2023, with higher interest rates commercial finance is an essential tool to help businesses through this unprecedented period of difficulty. Book an appointment with MC Commercial Finance and let us help you to secure the right deal to promote a productive long-term future for your organisation. 

It is also important to bear in mind that interest rates during the period between 2008 and 2021 were extremely low. Many businesses and individuals have grown-up and developed with rates of 1% and less being the norm. However, historically 5% is the average. Rates have been much higher, and with a calm focus, sensible decisions, and the support of a commercial finance broker most viable businesses will weather the storm. 

MC Commercial Finance Ltd is authorised and regulated by the Financial Conduct Authority 
(Reg number 948719).
MC Commercial Finance Ltd is an independent credit broker not a lender.
Company Registered Number: 12472873