What do frozen interest rates mean for UK SMEs?

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Bank of England Governor Mark Carney, Photo by Policy Exchange / CC BY

Bank of England Governor Mark Carney, Photo by Policy Exchange / CC BY

UK interest rates have been frozen at a low-rate for several years. What does this mean for your SME?

Interest rates typically move up and down, and as they do they affect the financial decisions of every person and business in the country. Businesses must pay interest on any loans they take out, and if they have a surplus they can invest that money and earn interest. If you allow your customers lines of credit they too must pay interest on the money they owe. In the UK, the base rate of interest is decided by the Bank of England, and, in particular, the Monetary Policy Committee. Since March 2009, interest rates have been frozen at 0.5% and are projected to remain low for some time. How do Interest Rates Affect Businesses? The frozen, low interest means SMEs can borrow money at a much lower cost. This makes a long period of low interest an ideal time to borrow money and fund expansion. Not only are interest rates low now, but they are set to continue to be low for some time. Of course, while the base interest rate has been steady for many years, many experts are predicting a rise to 0.75% or even 1.00% sometime late in 2016 or during 2017, which must be taken into account when borrowing. Despite the cost of borrowing being lower, the availability of finance is not always as high as you might think, with smaller businesses in particular still seen as a riskier proposition to lend to by banks. Discover everything you need to know to help make your business a great business with our one-day financial literacy training workshop Colour Accounting™.

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