Cost of borrowing going up as interest rates rise
Soon after the Bank of England voted to increase interest rates above 0.5% for the first time since 2009, new research has suggested that businesses are finding the cost of borrowing is on the rise.
According to the research from the Federation of Small Businesses, the number of small businesses being offered interest rates of under 4% on new lines of credit dropped to 31% from 39% year on year, with 35% being offered rates of 7% or more.
The study, which was conducted ahead of the Bank of England’s decision to raise interest rates to 0.75%, found that 42% of small businesses described new credit as ‘unaffordable’ in Q3 2018 – although 24% said the opposite.
With further rate rises predicted, it’s perhaps not surprising that some small businesses are concerned about the cost of funding going forward.
But cost isn’t everything
It’s worth remembering that cost is only one of the factors that businesses should consider when applying for new finance.
Instead, it’s the value of the funding and what it can help your company to achieve that is most important.
Here are just a few of the key considerations:
Sometimes the relationship you have with a funder can be just as important as the level of funding you can access. Whether you’re looking for a small independent funder or one of the leading big banks, it’s important that you find a lender who will understand your business, its sector, trading patterns, goals and challenges so that you receive the right levels of support throughout the duration of your facility.
Likewise, not all funders offer the same service levels or systems and technologies. Using more advanced systems could help your business to speed up processes and give you back valuable time to concentrate on your business. Plus, whether you prefer a more hands-on service or a funder who takes more of a back seat until you need them, finding a funding partner that is aligned with your expectations and requirements can significantly improve your relationship.
Different funding facilities offer varying levels of flexibility. Whilst loans and overdrafts are typically rigid and offer limited room for growing businesses, other options such as invoice finance grow in line with your sales ledger and provide greater flexibility so that you can scale funding up or down to meet changes in demand.
While some funding facilities are simply there to provide access to working capital, others can incorporate additional services such as credit management or debtor protection which can be particularly beneficial for smaller companies. Incorporating these functions into your funding facility can reduce in-house overheads and improve your credit control performance whilst giving you the time back to focus on other aspects of your business.
If you need help finding affordable new finance that will support your small business, as a trusted commercial finance broker we could help. Contact us today on 0800 9774833 to discuss your requirements or request a call back below.
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