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• 07 Nov

  What Can You Do To Protect Against Rising Interest Rates And Bank Base Rate

  

  Rising interest rates, often driven by increases in bank base rates, are a problem for UK businesses as they have a number of impacts. You can use this link to check the current Bank Of England Base Rate. This central rate tends to drive the base rate charged by UK banks (BBR - Bank Base Rate). This drives the cost of borrowing for UK companies.

  As interest rates rise, the cost of your borrowing increases but as the cost of everyone else's borrowing rises so do their prices. This can lead to price inflation throughout your supply chain. So, what can you do to protect your business from increases in the bank base rate?

  What Can You Do To Protect Against Rising Interest Rates?

  Protecting against rising interest rates and increases in bank base rates is primarily about addressing two things. The cost of your own financing and the cost of supplies, staff and expenditure to your company. These are not all going to be easy things to tackle, but there may be some steps that you can take to help reduce the impact of some aspects.

  Your Financing

  Obviously, this will depend upon the type of financing that you are using. If you have a term loan with fixed repayments you may already be protected against changes in the bank base rate. However, if your funding is on say an overdraft, where it is subject to a variable bank base rate, it might be time to consider other alternative funding options that don't involve a variable base rate element.

  Fixing Rates

  Occasionally, some invoice finance companies have agreed to offer fixed discount rates (discount works in a similar way to interest and is normally charged as a margin over the bank base rate). However, there are also fixed-price invoice finance deals for some smaller businesses whereby there is no discount element and hence no increase when the base rate moves.

  Moving Financiers

  Just by moving finance companies, you may be able to secure better rates that might make you a saving, even in the light of rising BBR. We specialise in helping people save money by moving invoice finance or factoring companies.

  Your Supply Chain

  This may be a more difficult issue to address. You may have staff working for you, in which case, they will be subject to the same impacts of rising interest rates. They may be seeing their mortgages and rents increase and they will also be subject to the effect of inflation on what they purchase. Therefore, they are likely to be seeking pay rises to increase their income at least in line with inflationary pressures.

  Outsourcing

  There may be options that can help, for example, looking at outsourcing some functions as opposed to handling them in-house. For example, factoring companies can offer an outsourced credit control service. This might help avoid the need to employ credit control staff. You might also consider the benefits of temporary labour over permanent positions if your requirements allow for that.

  Raw Materials & Other Expenses

  The same economic forces are likely to affect your other supplies like raw materials and other business expenses. The only practical options here are to shop around and try and drive down prices as part of reducing your costs. Perhaps purchasing in bulk rather than as needed could help you reduce some costs.

  The British Business Bank has published a useful list of 10 Ways To Reduce Your Business Costs - there may be some ideas in there that can help you drive down your cost base.

  Increasing Income

  Growing your business' income is another way of countering rising costs. Take a look at our article about Business Growth Strategies. It includes a link to our list of ways to make more money and increase profits.

  By Glenn Blackman