With research showing that a quarter of SME entrepreneurs have funded the growth of their business through their own personal finances, the threat of interest rate rises this year will concern many of your SME clients. The higher payments required across mortgages, credit cards and other loans could put a squeeze on them at a time when conditions are already challenging.
If this happens, your clients could find themselves pressurised on both sides – putting jobs and entire organisations at risk.
Your advice to small business owners and entrepreneurs worried about the prospect of almost certain rate rises should be to assess the situation in a series of steps:
- Work out what impact a rise of 0.25% or 0.5% would have on your repayment costs
Have you got your calculator at the ready? Pool together all the finance products you have on variable rates and see how much a rate rise could add to your repayments. Many finance websites have handy calculators that will do this for you. The impact of a 0.25% increase may be small on one individual product, but if you have several it could add up.
- Review your business costs and income
Are there are any unnecessary expenses you can cut out? Little business ‘luxuries’ you’ve been allowing that might need to go? On the income side, have you been undercharging for certain services or are you running ‘special offers’ that might need to end?
- Explore the finance options
There are many forms of good funding to explore instead of traditional bank loans. For example, invoice finance that enables you to borrow funds against the value of invoices you have issued but not yet been paid for. Purchase finance that pays your suppliers for goods you buy from them. Asset finance for the purchase of business equipment. Or simply short-term loans to help you meet your needs.
Although banks will offer services of this type, the customer experience will be vastly different. Where high street banks will reject a business that doesn’t meet pre-set criteria, other providers will offer a more tailored approach. As rate rises seem to be looming, now is the time to do your homework.
SMEs are the growth engine of the UK economy and its vital they are supported at every turn. Although rate rises will prove difficult for many, with your support the road will become much less rocky.