As inflation soars, should business investment be accelerated?
One of the key issues resulting from the combination of rising inflation and interest rates is the impact this is having on business investment.
As the cost of everyday consumer items keep on rising, so too do the very tools and materials many businesses require to be successful. And with both inflation and interest rates widely anticipated to climb higher and remain high for some time yet, some businesses will be deferring decisions around investment until the picture becomes a bit clearer.
However, there is another school of thought that businesses should instead move quickly to stock up on raw materials and accelerate investment plans before prices and the cost of borrowing potentially increase further.
This view is shared by Simon Hart, lead international partner at RSM UK. “There’s a strong argument that one of the most effective means of protecting against the very worst impacts of inflation is to invest in infrastructure now,” he says.
“Any early investment in productivity and efficiency-enhancing processes should benefit an organisation’s overall competitiveness and output over the long run when margins are squeezed.”
Path to investment
It’s one thing deciding the time is now for your company to invest. With many businesses’ finances being squeezed from all angles, however – 42% revealed that the increased cost of doing business has caused cash flow issues in a recent survey by Close Brothers – doing so will only be possible for those with sufficient finances available or a willingness to explore external finance.
So it is interesting to note that, despite the current pressures, businesses’ appetite for borrowing to invest in growth is the strongest it’s been since the same survey began in 2015. Whether due to the risk of inflation rising further or to capitalise on the current cost of borrowing ahead of further interest rate rises – perhaps with a view to making use of the extended Recovery Loan Scheme – 66% of respondents said they plan to seek funding for business investment in the next 12 months.
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‘Investment’ covers many things, of course. This could be investment in new plant and machinery, a new office, factory or warehouse, or new infrastructure. It could also refer to investment in raw materials, to stock up now before wholesale costs rise further, for example.
The same survey indicates that 40% have missed a business opportunity in the past 12 months due to a lack of finance available, with 66% already negatively impacted by rising inflation.
So businesses’ preparedness to seek finance in order to invest goes to show just how many are proactively monitoring and reviewing the current cost of doing business and adopting a long-term strategy.
If your business is keen to invest currently but requires external funding to do so, we can help. As an independent commercial finance broker, we have over 25 years’ experience of introducing businesses of all sizes to the most suitable finance facilities and funding partners. To discuss the options available to your business, call our team on 0800 9774833 or request a call back here.