Whilst interest rates are low by historical standards (some will remember 15% in October 1989 to curb inflation and 12% in October 1992 following the ERM crisis, trying to halt the fall in the value of the Pound) the current round of increases will present challenges for SMEs. Although the norm from 1994 to 2007 was around the 4-5% mark, since the Credit Crunch of 2008 that they have been consistently below 1% and businesses will have become used to this as they planned ahead.
Of course, this is all changing with the combination of Brexit, Covid and now the Ukraine war, interest rates are on the rise again. The Bank of England is again using interest rates as a tool to both tackle inflation and avert a run on the pound. Base rates of above 1% have not been seen for nearly 15 years and this change in the status quo will present potential problems for a business community used to consistently low levels of interest and high (in relative terms) availability on their business facilities. This increasing cost of funding, which is likely to get higher, as well as likely higher levels of rejection (lenders will tighten their lending criteria in anticipation of higher default levels) will force many business owners to look elsewhere for funding.
Of course, businesses will still need to access new funding to achieve their objectives – whether that is expansion or innovation or simply keeping things running. Whilst new funding from financial institutions will still be on offer, its cost and availability may put off many businesses from trying to access this funding. This will mean grants will become an even more attractive option for ambitious SMEs. As far as we can see, grant availability has not yet been affected by recent events and it will be interesting to see whether we see any changes in availability over the coming months. It is certainly something we can monitor and report back on moving forward. So, keep an eye out and sign up form to the newsletter to see how things pan out in the world of grants.