How interest rates impact businesses

Between March 2020 and August 2023, the Bank of England’s base interest rate increased from 0.1% to 5.25%. It’s now settling back down, having very recently decreased to 4.5%, but if you’re wondering what impact this increase may have had on your business, read on. 

How do interest rates work? 

Interest rates are essentially how lenders make money. In exchange for extending funding to you, they charge a percentage of the loan as interest. You pay this fee, usually on a monthly basis, until the loan has been fully paid off. There are two standard types of interest – fixed rate and variable rate. Fixed interest rates stay the same throughout the loan term, while variable rates can change based on market conditions. 

How do interest rates nationwide impact business growth? 

Interest rates are known for impacting customer spending. As the cost of borrowing goes up, spending can go down as consumers may have less money available to spend on luxuries – this is often a result of their mortgages, car repayments, and insurance costs increasing. 

How do interest rates impact businesses on an individual level? 

As a business, higher interest rates can result in you having less money to fuel growth and manage working capital. This strain can mean you’re less likely to jump on new opportunities, you might feel more stuck when there are bumps in working capital, and your operational costs could be higher. 

Some tips for reducing interest rates 

There are a few key ways in which interest rates can be reduced.

Shop around and use a broker 

Compare and contrast financing options from a range of lenders to find the best possible interest rates. Using a broker, like Funding Options by Tide, can be a convenient way of cross referencing interest rates quickly and efficiently. For instance, we work with over 120 lenders, so we can give eligible borrowers an idea of the best interest rates they might be able to get much faster than a borrower approaching 120 different lenders individually either online or in branch. 

Ask

Sometimes, it’s a simple case of asking. If you currently have an agreement with a lender, or if you’ve been given a quote that you’re mostly happy with but are hoping for a slightly smaller interest rate, consider just asking. 

Use secured finance 

Secured loans often come with lower interest rates when compared to unsecured business loans since the lender may feel more comfortable knowing there is an asset being used as collateral, and they may therefore lower the amount of return they receive on their investment. Secured loans are often larger in size. Most business items can be used as collateral, including properties and equipment, and sometimes even personal assets can be used. 

Consider consolidating debt 

Sometimes, one large loan can result in a lower overall interest rate than a series of smaller loans, each taken out at a different time. The Bank of England’s base rate recently fell to 4.5%, which could mean that taking out a loan now might result in a lower interest rate than loans you may have taken out in the last few years. 

If you’ve been effectively meeting your repayment obligations for a few years now, and your business has been operating well, it’s possible your company credit score has increased since you took out your current loans, and you may get a better offer if you apply now under your current conditions. 

What can you do to get the most out of debt finance?

There are several things you can do to ensure you get more benefits out of debt finance, and actions you can take to reduce some of the possible drawbacks. 

Keep interest rates low 

Try, if you can, to find better interest rates and terms when taking out debt finance. This can be done with some of the methods above, including using secured loans and working with a broker who can cross check interest rates from a range of sources. 

Fit funding around your goals – not the other way around 

Have you ever gotten swept up in a sale? Maybe you arrived at a car dealership with certain prerequisites, but then faced with the possibility of having to return home by taxi, ended up going ahead with a car you’re no longer happy with. 

The thing is, there are a lot of possible options for funding. There are merchant cash advances, semi-commercial mortgages, invoice discounting, and many more, each with their own features and benefits. That’s why it’s so important to know what you want and why before agreeing to a loan, so that you don’t end up working around the finance, but instead, work the finance around your true goals and needs. 

We believe that’s one of the reasons it can be great to work with a broker. We can listen to your needs and goals first (and even your fears), and then someone from our team of experts can help you understand which funding solutions might be most suited to your needs, along with what the possible interest rates you’re likely to be quoted are. This can mean you’re fully armed with all the facts before entering into an agreement. 

Manage cash flow while keeping growth in mind

There’s a balance between growth and stability. Debt finance, particularly working capital loans and invoice finance, can be used very effectively for smoothing out bumps in cash flow. The method is simple – you take out some form of business finance during peaks in seasonal spending, such as Christmas and Black Friday, to support inventory purchases and operational expenses. You then repay these loans once the sales have gone through and invoices have been paid. This can help prevent you from losing out on growth periods where you might not have the funds available upfront. 

A similar example, but on a much larger scale, is something like auction finance. Let’s say you want to purchase a property at auction. The purchase would be financially prudent, and would be a great addition to your rental portfolio, but you don’t have the 10% upfront payment to make on the day of the auction, or perhaps you are without the full amount that needs to be settled within a month of acquisition. You don’t even know if you’ll win the bid. Auction finance can help you maintain cash flow by fronting you the cash if your bid is successful, which could ultimately help you grow your business by enhancing your portfolio. You would then repay the funding a few months to a year later once you’ve sold another property or secured a commercial mortgage. 

Find out possible interest rates from a range of lenders 

We help support British businesses by matching eligible borrowers to our network of over 120 lenders offering between £1,000 and £20 million. Whether you’re looking for asset finance, a commercial mortgage, or a bridging loan, we’re here to provide expert support and guidance. 

If you’re eligible, we may be able to cross reference a range of possible interest rates and loan types, helping you find the lowest rate available for your unique circumstances. Click the link below and submit your information to find out if you’re eligible for funding and if so, how much you might be expected to pay in interest across the length of the term. 

Find out possible interest rates from over 120 lenders.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.