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Recent months have seen interest rates begin to creep up after a long and stable period of near zero interest rates. Small businesses are especially exposed to the financial risks and uncertainties caused by these rate increases.
Some reports suggest that a rise in interest rates of just 0.25% could cost British SMEs an additional £355m in interest payments in the first year alone. If the bank rate were to rise by a full percentage point to 1.5%, it would cost SMEs an extra £1.4bn in interest payments.
What’s more, annual interest payments on floating rate loans could rise from £3.7bn to more than £4bn.
Another serious issue facing small businesses in Britain is the lack of fixed-rate lending. Only five years ago, almost 50% of business lending was provided on a fixed rate basis. This has slumped to just 11% according to recent government figures. The reason is that banks have prepared for the rate rises by de-risking their loan books.
Bernard Verby, CEO of Bennett Verby, commented,
“The near zero rates of the last few years are unprecedented, and we might never see the like again. Small businesses may look for fixed-rate loans, before further interest rate rises occur, as most experts are predicting they will.
“However, fixed-rate loans are now virtually unavailable from banks so that will prove extremely difficult to achieve in practice, and SMEs are having to consider other options beyond traditional High Street lenders.
“We work with our clients to explore alternative sources of finance, such as borrowing from an investment fund, but fixed rate terms are in increasingly short supply as other lenders link borrowing costs back to mainstream rates.”
In the immediate foreseeable future, interest rates will undoubtedly continue to go up, and if Britain is to thrive in that immediate future and a post-Brexit world, fixed rate finance will be a fundamental driver.
The scale of the impact of interest rate rises on small businesses cannot be exaggerated. What is more, the effects will be felt by all of us. It is crucial that businesses plan now to try to lessen the effect as much as they can.
If you have concerns about your company’s vulnerability, why not get in touch and take advantage of our free, no obligation initial consultation?
You can email us here or call us on 0161 476 9000.
