What Businesses Can Do to Cope with Rising Interest Rates

A series of gradual (and in some cases anything but) interest rate rises was always something of a foregone conclusion. It would have been impossible and impractical for the historic lows of the past couple of years to remain indefinitely, with the Bank of England having little choice but to nudge things increasingly higher.

In terms of what businesses can and should do to cope with rising interest rates, the short answer is: Anything within their power. Most of which falls within the category of damage control, but encompasses the kinds of small alterations (operational or otherwise) that could add up to a big difference.

Business Premises More Expensive to Run

Existing facilities owned by businesses are likely to get more expensive going forwards for two reasons. Utility bills are set to skyrocket indefinitely and rising interest rates are making commercial mortgage payments more expensive. As the vast majority of commercial mortgages are issued as variable-rate loans, most businesses with outstanding mortgage debts will be affected.

One of the available options in both instances is to consider switching suppliers.  Refinancing can pave the way for significant savings if a superior deal was found from a competing lender. Somewhat more negligible savings could possibly be made by switching to a different energy supplier, but every bit helps. All the while, working to reduce operational costs by minimising energy consumption (and waste) should be prioritised.

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Protect Short Term Cash Flow

There are a great many reasons why a business (SMEs in particular) could run into temporary cash flow issues. Examples of these include important customers who delay or cancel orders, suppliers who unexpectedly increase their prices and so on. In all instances, it is important to ensure some kind of financial buffer is in place to compensate.

This could include taking out some kind of credit facility in advance of such issues occurring, to negate their negative effects should it become necessary to do so. Examples in this instance include merchant cash advances, invoice financing and other specialist lines of business credit. All of which could help your business continue functioning short-term when faced with temporary financial turbulence.

Monitor Foreign Currencies

Where a business procures any products, components, or raw materials from overseas, keeping a close eye on foreign currencies is more important than ever. GBP value has fluctuated wildly recently, though has been moving mainly in a downward trajectory.

Sourcing the same items from the same suppliers has become less economically viable and thus locating an alternative supplier may need to be done. Alternatively, bulk deals and long-term contracts could be discussed with existing suppliers, with the aim of keeping costs to a reasonable minimum.

Expect More Hikes and Plan Ahead

The general financial outlook for companies in the UK is expected to get worse before it gets better. There are further interest rate hikes on the horizon, not to mention the confusion in regards energy prices going forwards. Running a business is going to get increasingly expensive and procuring just about anything to fuel operations will cost more in 2023. All of this means that now is the time to begin planning ahead and to keep a close watch over cash flow forecasts to identify (and ideally pre-empt) potential shortfalls. Again, this is where considering a flexible short-term credit facility could help, or perhaps switching to new products and providers to cut costs.

By Craig Upton

Creating strategic partnerships and supporting data with extensive research in the latest trends Craig is well versed with most products within the financial sector. Craig has worked within the online marketing arena for many years, having worked with British brands such as FT.com, Global Banking Finance and UK Property Finance, specialising in bridging loans and specialist mortgage finance.

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