Jump around!
5%. Enough. Not enough. Too much. Depending upon which headline you read, the jury’s out on how far the Bank of England will hike interest rates in the coming months. Most recently, the International Monetary Fund has warned that UK interest rates will need to remain elevated into the middle of 2025 to tackle stubbornly high inflation, before settling back to the government’s target 2%. Others have suggested that rates will peak at 5.5% in September, while the Economic Advisory Council has warned Chancellor Jeremy Hunt that spiralling interest rates risk pushing the UK into a recession.
Whatever way the barometer swings, the reality is that UK interest rates have an effect on all our economic futures. While residential mortgages and savers are directly impacted by changes to interest rates, the knock-on effect on many businesses is an inevitable consequence. Rising mortgage and loan interest rates put many households under pressure and, as disposable income becomes short, consumers hold back on spending which affects the retail, leisure and hospitality industries in particular.
In these sectors and others, particularly manufacturing and construction, there have also been significant increases in material and operating costs in recent years with the pandemic, Brexit, the fuel and energy crisis all compounding the pressure on many companies’ ability to trade profitably.
Overdraft or business loan?
While consumer and business lending are charged differently – the latter at a higher rate which is based on the risk, time and type of loan taken – rising interest rates can also make short-term borrowing more expensive for a company. This might deter some firms from taking out a loan to manage cashflow or fund investment, which can limit its ability to grow, yet ironically this is often not the best way to protect a business.
If a company is struggling in the current economic climate, there are several ways to shore up its finances and weather the storm. While it may sound counterintuitive, business finance can provide a way to stabilise cashflow and fix overheads, so that it is less exposed to peaks or troughs in trading. By working with an expert commercial finance adviser to identify the right type of funding, owners can often protect their cashflow until trading conditions ease.
There are several types of finance which can be used to lock down operating costs and, while many companies rely on their overdraft for day to day trading, it’s important to know that an overdraft facility can be called in by a bank at any time. An overdraft is a short-term cashflow solution and if a business relies on it or regularly has insufficient funds, a commercial loan may provide a better facility. A business loan can provide stability by providing a fixed line of credit with regular repayments, enabling a company to plan and manage its cashflow more easily.
With a wide range of lending available including unsecured business loans, secured business loans, short-term business loans and asset financing, a commercial finance broker can help you to work out which product best meets your needs, prepare an application for a loan and arrange this with a suitable lender.
Asset refinance in East Anglia
One often overlooked yet potentially valuable source of business funding is asset refinance which can raise capital from existing assets owned by a company. Asset refinance can be particularly valuable during straightened trading conditions, as it can reduce monthly outgoings by stretching payments over a longer term, and some have compared this type of commercial finance to a personal debt consolidation plan, as it can combine several monthly bills into one single, affordable payment.
Often businesses are surprised that existing assets in a business have a value which can be used to raise further capital and, again, a commercial finance broker will know which specialist lenders to approach that will be willing to fund against machinery or equipment.
Cashflow solutions for small businesses
Even if a company does not have any assets, other business finance tools are available to alleviate the pressures on cashflow. Invoice discounting allows a firm to sell its unpaid invoices to a lender in exchange for a cash advance of a percentage of an invoice’s value, while a merchant cash advance, a relatively new type of funding, enables a business which takes card payments to borrow a lump sum and repay a small percentage each time a customer pays by card.
It often pays to speak to a commercial finance broker as they may see opportunities to raise funding in a business which an owner is unaware of. By using the expertise of a broker and building a long-term relationship, a company can call upon them time and again as a trusted business adviser who can advise on a regular basis to tailor finance and help them grow.
Recent research by accountancy and business advisory firm BDO revealed that more than 90 per cent of mid-sized UK businesses are facing challenges accessing funding and financing against the backdrop of interest rate rises, stifling plans for growth, yet a commercial finance broker can help to navigate lending options and manage the application process. As with any aspect of business, planning ahead will always offer the best opportunities and a breadth of options. While the current economic climate is challenging, by acting now companies can put themselves in the best position to reduce the impact and protect their business.
