MONEY
Adam Aiken
The perils
of rising
interest
Are you ready for higher interest
rates – and is there anything you
can do to cushion the blow?
Adam Aiken takes a look
I
nterest rates have been at a
historical low of 0.5% for more
than half a decade. There have
been suggestions at various
times during this period that
rates are about to go back up,
but these have all been false
alarms - so far.
However, there are whispers
once again that a rise in
base rate is imminent, and
that means businesses with
borrowings need to be prepared.
Despite the woes that
businesses have found when it
comes to bank financing since
the 2008 crash, many of those
that have successfully borrowed
money have done so at very cheap
rates. According to the Institute of
Chartered Accountants in England
and Wales (ICAEW), there are
1.6 million businesses that have
been established while interest
Even
if you’re
prepared
for a base
rate rise,
you might
have
customers
and
suppliers
who aren’t
rates have been at 0.5%, and,
crucially, these businesses have
no experience of operating in a
world with higher rates. ICAEW
has also found that nearly two
thirds of businesses have not
put any measures in place to
deal with rising interest rates.
Although you won’t be able
to prevent a rise, there are a few
basic things you can do to make
life easier when it eventually
happens - and it will.
As with a domestic mortgage,
consider shopping around for a
new deal on your borrowings.
You might be able to find a
fixed rate deal that will charge
you a little bit more than your
current rate, but which will
cushion you from the effects of
any baserate rises.
What if you don’t rely heavily
on borrowings? This doesn’t
necessarily mean you are out
of the woods. A rise in rates
will affect everyone, not just
you. Research by Company
Watch suggests that one in five
businesses uses more than 90%
of its operating profits to meet
interest commitments.
So even if you’re prepared for
a base rate rise, you might have
customers and suppliers who
aren’t. Keep an eye on them
and look out for signs that
they’re struggling.
Meanwhile, consumer spending
could also take a hit if base rate
goes up. Personal and consumer
debt is more than £1.4 trillion
and many people will struggle
when the cost of their borrowing
rises. As a result, there are likely
to be few, if any, businesses that
will not be impacted at all when
the Bank of England eventually
makes its move.
However, if you have been
thinking about making further
investment, now might be the
time to act. Lenders themselves
will be preparing for a rise, so
you are unlikely to find finance
deals as cheap as they once were,
but looking to secure your funds
now is likely to prove cheaper
than waiting another year, if the
expectations are correct.
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