With the latest announcement from the Bank of England that the UK base interest rate is dropping from 4.75% to 4.5%, this can have both a positive and negative financial impact on your business, depending on your current situation. Having a solid understanding on how changes to the base interest rate will affect your business is important to help keep your business both on track and healthy.
what are the main impacts on a reduction on the base interest rate?
reduced cost of borrowing
What is probably the most obvious positive is any loans your business takes out, or renegotiates, will be at a lower interest rate. This then directly impacts the amount of interest being paid and therefore can reduce any monthly repayments or allow you to shorten the length of the loan.
The lower interest rates can also open up new financing options that were previously unavailable, either due to the costs not being sustainable or the financial institutions being more open to giving out loans.
improved cashflow
Building on the above, with lower interest rates and therefore lower repayments you are already spending less each month and increasing the overall cashflow in your business. The additional cash can then be spent on other areas of the business to promote growth or to distribute to shareholders.
The other, not so obvious, side of the improved cashflow is less to do with your business but more your customers. The interest rate reduction will affect individuals’ loans and mortgages, reducing the costs for them. These reduced costs suddenly free up more cash for them to spend on luxuries, if you can direct this into your business you can start seeing improved sales.
improves opportunities for investment
Building even further on reinvesting in your business, with the lower cost of capital due to cheaper borrowing costs you can further invest into growth. Expand into new areas, improve on current products, upgrade technologies or hire new staff. The possibilities could be endless.
With lower interest rates comes more confidence from investors, this makes it far easier to find new investors to help grow your business.
economic growth
This is more far reaching than any business on an individual level. With lower interest rates leading to encouraged borrowing and consumer spending, it will help to encourage economic growth by simply having more cash available to spend on the luxuries. This in turn creates a much stronger economy for businesses to thrive in.
If you looking to invest in your business or are trying to find the best way, take advantage of the reduction in interest rates, please get in contact with us.
