Act now to protect your business against interest rate rises

A key member of the Bank of England’s interest rate-setting committee has indicated that the base rate could rise faster than expected.

In an interview with the Financial Times, Monetary Policy Committee (MPC) member Martin Weale said he is now weighing up his sense of “the risk of waiting too long versus acting too soon.”

The Bank has held interest rates at their record low of 0.5 per cent since 2009. Markets have predicted that the MPC would push them up by nearly 2 per cent over the coming three years.

But Mr Weale has now indicated that the rises could begin sooner than previously thought. He told the Financial Times: “If you want to have baby steps you have to start sooner. The question is: how close are we getting to ‘soon’?”

It is clear that interest rates are going to rise in the medium term, and that you need to protect your business against this. So how do you go about safeguarding yourself against the impending interest rate hike?

  • Pay down debt Many business owners and consumers have been using the low interest rate situation as an opportunity to pay down their existing debts as a way to protect themselves against rate rises. Read more about quick ways to pay off business debt.

  • Budget for increases It is vital that you take increased credit costs into account when making your short- and medium-term financial plans. You need to build in a sensible contingency that will enable you to absorb the bump of a moderate rate rise.

  • Think about refinancing All too frequently small businesses forget about the need to shop around. It may be that you can find a better deal on your debt by refinancing. You might choose to pay particular attention to fixed rate deals that allow you to ‘lock in’ to the current low rates for a longer period.

  • Look for alternatives Of course, the banks are no longer the only show in town when it comes to business loans. If you are looking for a cheaper, lower-hassle alternative to the High Street, you may wish to consider alternative finance methods such as peer-to-peer lending. Read more in our small business finance guide.

  • Don’t forget fees It is important to remember that the interest rate alone won’t encompass the whole cost of the debt. You should make sure that you also pay attention to additional costs such as arrangement fees. These might be charged at a flat rate, or as a percentage of the total loan.

  • Think about mortgages Finally, you should remember that rising interest rates will also dramatically affect any mortgage payments that you have to make. Recent figures suggested that residential mortgage payments could double thanks to interest rate rises, and commercial loans are likely to move too. You should therefore make sure that you take increased mortgage costs into account in your financial planning.