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Business Finance – Market Update

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Last week the Chancellor announced UK homeowners could expect mortgage payments to increase by an average of £1,000 per year and interest rates are predicted to rise to 2.5%. As the Bank of England raise the base rate from 0.75% to 1.0% in a bid to tackle record levels of inflation, we asked Pilot Fish Directors how the situation is impacting the commercial markets.

Richard Jones, Pilot Fish Managing Director and business finance specialist shares what he is seeing in the business finance space.

What trends are you seeing across the business lending space? 

The cost of borrowing for mainstream lenders is largely determined by two things: the base rate and the margin the bank sets against the product. When the BoE increased the base rate in March this year, we saw an immediate increase to the cost of borrowing as lenders passed the rate hike onto customers. 

We haven’t seen banks increase their margins however, the increase to the base rate pushes prices up. It’s likely businesses will continue to see an increase in the cost of borrowing over the coming months as the base rate continues to rise.  

Do you expect to see further changes over the next 12 months? 

It’s likely we’ll see the cost of fixed rate products continue to rise as lenders account for the increase in cost for wholesale funds. 

Many economists predict we are heading towards a recession. Volatility in the market causes lenders to take a cautionary approach. When assessing applications, lenders will ascertain if your business is recession proof i.e., will your business withstand a turbulent trading period? 

What can business owners do to best prepare? 

Businesses can start to take practical steps to ‘recession proof their business’ and protect cashflow by preparing for higher costs in the coming months. Put together a cashflow forecast so you can identify any potential shortfall and take action early. 

If you have a strong trading history, you will have access to the most competitive business finance rates. Speak to us about available funding options and we’ll help you assess if you could refinance to a less expensive lender.

If you are seeking business finance over the coming months, the cheapest form of borrowing is asset backed. Consider if you have assets available (invoices or property) that can be used to back your borrowing. Similarly, look to move to fixed rate products where available, which will allow you to plan ahead and fix business outgoings.  

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