Asset and equipment finance lenders will have a key role to play in helping businesses plan to mitigate the cost of potential interest rate rises this year, according to industry experts.
Executives at Hadrian’s Wall Capital, the London-based specialist debt adviser, say just 11% of the £416 billion in total stock of loans to UK businesses is provided on a fixed rate, a third lower than two years ago.
With an interest rate rise expected in May, this could leave businesses with huge exposure to higher costs.
The company says that fixed-rate loans are now increasingly difficult for businesses to obtain – especially for small and medium enterprises, so growing companies could be hit by cash flow concerns as repayments on loans jump.
A recent study by Hadrian’s Wall Capital found that the expected interest rate rise of 0.25% will cost British SMEs around £355 million in additional interest payments in the first year alone.
Marc Bajer, CEO at Hadrian’s Wall Capital, said: “Asset finance and equipment finance brokers can add value for their clients by helping them understand what the rising interest rate environment is going to mean for them.
“We’re still in the very early stages of the interest rate rise, so there is still time for businesses to make sure their cost of finance is future-proofed as much as possible, by borrowing on a fixed rate wherever they can find one.”
He said that asset and equipment finance lenders must also be wary about the impact of a rate rise on their own cost of funding, adding: “They need to look at where they can get fixed rate debt and be mindful of asset/liability mismatches on their balance sheets.”
Hadrian’s Wall Capital is the investment adviser to Hadrian’s Wall Secured Investments, a London stock exchange-listed fund which is focusing on providing long-term, fixed-rate, non-callable loans to SMEs, to give them intermediate to long-term certainty over their cost of funding.
Bajer added: “Now is the time for small businesses to lock in to fixed-rate debt, before interest rates rise again.
“When interest rates rise, small businesses are likely to suffer financial damage - a rise in the base rate to just 1.5% would cost UK small business billions.
“Fixed-rate loans are now virtually unavailable from banks, and many SMEs are reliant on floating rate debt. Any jump in interest rates could see small businesses burned by their reliance on floating rate loans.”
Earlier this year, the Bank of England signalled that interest rates could rise as soon as May.
The bank’s governor, Mark Carney, had previously suggested there could be two rate increases to curb inflation over the next three years, but concerns are growing more frequent hikes are on the way.
