Dawsongroup | finance

This is how to prepare for an interest rate rise

With inflation hitting the highest rate in 30 years – 7 per cent in April according to the latest Office of National Statistics figures – businesses everywhere are bracing themselves for another rise in interest rates.

The Bank of England already raised the UK’s Bank Rate in March – a small hike from 0.5 per cent to 0.75 – but with inflation predicted to rise still further, potentially going as high as 10 per cent later this year, further action is inevitable.

We have a number of ways to prepare your business for interest rate rises and limit the financial impact on your business’s finances.

The impact of rising interest rates

How far the Bank of England will go to try to bring inflation back under control is uncertain – but we do know the next interest rate decision will be revealed on 5 May.

Higher interest rates send shock waves through the economy with everything from mortgages to car loans potentially becoming more expensive.

Businesses with more debts, especially those who have borrowed at variable rates, will see their spending power hit hardest. That hit can easily translate into your business failing to seize opportunities for growth, or even shrinking.

You can also anticipate price increases from suppliers and contractors as inflation rates impact across the board, driving up the pricing of manufacturing, distribution, and services.

The temptation can be to opt for shorter-term loans tied to cash flow but be aware that can potentially present greater risks down the line.

How you can protect yourself from rising interest rates

Take steps now to assess the type and level of your debt and review your business strategy with higher interest rates in mind. It is possible to insulate yourself from the worst of it and protect your capital and cash flow.

One way you can prepare is by reviewing your current finance agreements. While a variable-rate might have made sense in recent years, it no longer does – now is the time to switch into fixed-rate options if possible before they reset. A fixed interest finance agreement, such as those offered by Dawsongroup Finance, can allow you to avoid any potential stings from rising interest.

You might also look into refinancing – raising money against an unencumbered asset within your business to help ease cash flow or to consolidate outgoings. Releasing equity can improve cash flow and allow you more freedom to invest in other areas of the business which need it.

And while it is never wise to take financing you don’t need, if you know you are going to need an asset in the coming months, it might be wise to go for it sooner rather than later to take advantage of more favourable rates before they rise.

To find out how our asset financing options can help your business be ready for interest rate rises get in touch with the Dawsongroup Finance team at info@dgfinance.co.uk or by calling 01425 474070.