Blog How SMEs Will Be Impacted By Interest Rate Rises

By on |

How SMEs Will Be Impacted By Interest Rate Rises

The possibility of an interest rate rise has been on the horizon for quite some time now. For SMEs, this is a particularly scary prospect. Whilst there’s no guarantee on the amount interest rates will increase by, we do know it’s due. It could even be as early as August, and if not, then sometime later this year.

A rise in interest rates doesn’t have to be daunting, though. If you prepare your business appropriately, then it can be much easier to deal with. Here, we go through how SMEs will be impacted, and what you can do about an interest rate increase.

Struggles with borrowing

Even an interest rate rise of just 0.25% would result in a cost of £355m total for British SMEs in the first year. As well as this, yearly interest payments could increase from £3.7bn to over £4bn overnight.

This means that those who choose to borrow right now may not be able to afford to in the future. And, unfortunately, there’s not much choice in terms of loans – there’s minimal fixed rate lending available, with only 11% of entire business lending being of this type. Five years ago, this was around 50%. But banks preparing for the interest rises by de-risking their loan books has resulted in the risk being passed onto SMEs.

Difficulty with investment

The uncertainty around when interest rates will increase, and how much by, makes it tough for SMEs to plan for the future. It’d be risky for them to borrow money when they’re unclear on the exact costs involved, making well-informed decisions on investment prove incredibly difficult.

Going ahead with it regardless could potentially produce significant money issues in the future, but not investing can be equally risky if the stability of the SME is depending on it. Even if they don’t need to invest, they’re delaying the growth of their business, which may cause problems in the long-term.

Potential solutions

There are a few options available for borrowing finance. You can opt to use an investment fund, or swap products (although the mis-selling scandals have made SMEs extremely wary of choosing this latter option).

Whatever you decide to do, you’ll need to stay on top of your cash flow. You can use cloud accountancy software like Xero to automate the invoice chasing process and ensure you get your money sooner. Another idea is to review all your finances as best you can. Figuring out the numbers can prove difficult if this isn’t your specialist area, which is where an expert like Bright Ideas Accountancy can assist.

Be prepared with Bright Ideas Accountancy

We take the hassle of sorting out the sums away from you. We’ll help you plan ahead by preparing annual accounts, and ensure that every single aspect of your SME’s accountancy is dealt with – from bookkeeping, to account management, to the Self Assessment.

To discover how we could help your business, arrange a consultation by calling our team on 0161 669 4221, emailing, or filling in our online contact form.