How will a UK interest rate rise affect ecommerce SMEs?

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Interest rates in the UK have been at a record low for several years. Governor of the Bank of England Mark Carney has indicated that they will start to rise, probably early next year. And Ian McCafferty, a member of the Monetary Policy Committee has said he thinks they should rise immediately.

What would that mean for ecommerce and other SMEs? Tony Pegg, Managing Director of Capify, offers his perspective:

“Mark Carney has suggested that the ‘new normal’ interest rate would be 2.5 per cent by early 2017. Although many commentators are split on when and at what speed The Bank of England will raise interest rates, the rise itself is a certainty, as evidenced by the first dissenting vote of 2015 in the Bank of England’s rate-setting committee. The decision and the mood painted recently has in effect put SMEs on notice that the increase will likely come in 2016.

This rate increase could cause difficulties for SMEs that have borrowed in the preceding years. If interest rates rise, the potential increased cost of debt many SMEs will have commercial mortgages and loans that will become more expensive once an increase is implemented. Reviewing current borrowing arrangements now with their bank manager, accountant or financial advisor will help them to understand what effect interest rate rises will have.

Undertaking a full financial audit will enable SMEs to assess their true level of debt and the fluidity of their cash flow – both now and in the medium and long-term. SMEs should then seek to evaluate whether their current lending arrangements are still viable and if not, look to alternative lending sources.”


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