Caution urged ahead of interest rate decision

Ahead of the Bank of England’s (BoE) November interest rates decision next Thursday, Federation of Small Businesses (FSB) National Chairman, Mike Cherry, has stressed that SME business owners must understand what a rise would mean for them.

Here are some of the ways in which interest rates affect your SME business:

Business Planning – An increase in interest rates could impact your ability to expand or grow your business, by reducing your overall company’s earnings.

Cashflow – If you operate with restricted cashflow, more money needs to be put aside to repay loans and other debts. This in turn reduces the income available, making it more difficult for you to manage running costs and payments to staff and suppliers for goods and services.

Debt – An increase in interest rates will add more pressure on SMEs by making debt more expensive, as a rise typically increases mortgage and car repayments, for example. This means that businesses that are highly geared and operating on low margins may struggle to service their debt commitments.

“Any firm that’s set-up in the past decade has only known rock bottom interest rates,” Mr Cherry says. “If the BoE is going to start increasing interest rates, it’s critical that business owners understand what rises mean for them.

“If their mortgage, personal loan and car leasing payments start to creep up, that’ll have a very direct impact on their ability to invest for growth and create jobs”.

“Awareness is particularly important for the smallest businesses and self-employed because their personal finances are often tied-up with their firms.”

Mr Cherry adds that although a rate rise was inevitable, it’s critical it’s done at a pace that small businesses can manage.

Whilst the economic environment remains largely unpredictable for UK SMEs, due to the size and nature of their businesses, they have the advantage of being able to be flexible and quick to respond to changing market conditions. The key is to partner with the right specialist adviser who will guide you on your strategy and assist in making those all-important business decisions that will have the greatest impact on future success.

For more information about how we can assist you and your SME business, contact Steve Govey or your usual Beavis Morgan Partner.

Through our partner businesses BM Structured Finance and BM Advisory, we are also able to help with sourcing and restructuring debt finance for SME businesses, as well as assisting with resolving issues which can impact on business performance and success, and finding innovative solutions for businesses and individuals in distress. Contact Andy Pear or Mike Solomons for more information.