Strategies for SMEs: Surviving the interest rate hike


As interest rates in the UK rise, small and medium-sized enterprises (SMEs) will undoubtedly feel the pinch.  

Interest rate changes can be effectively managed by SMEs by reviewing and altering the financial processes within their organisations to ensure outstanding debts are quickly resolved. 

The Bank of England has recently pushed interest rates up to 4.5 per cent, the highest they have been in almost 15 years.  

The Bank of England’s decision was made to curb soaring inflation, and there are warnings that this could go up to 4.75 per cent later this year. 

HMRC late payment interest rates to increase 

HM Revenue & Customs (HMRC) late payment interest rates are linked to any Bank of England interest rate change, and it has been announced that these rates for late payment and repayment will increase. 

These changes will come into effect on: 

The current late payment interest rate is 6.75 per cent, and the current repayment interest rate is 3.25 per cent.  

At the time of writing, the increased rates have not been announced, so please visit the GOV.UK website for more information.   

Bad debt for SMEs on the rise 

A study conducted by Bibby Financial Services has found that the average levels of bad debt for SMEs in the UK have jumped up to £16,641 in February 2023, a 61 per cent increase from February 2022.  

The increase in interest rates can lead to a much higher risk of bad debt, so it is important for SMEs to use the tools at their disposal to manage this risk and remain financially secure.  

Evaluate debt levels 

It is important for SMEs to analyse and evaluate their current levels of debt, as the interest rate hike will see an inevitable increase in the levels of repayments.  

If possible, consider moving some or all your debts to a fixed-rate loan, which will protect your business from any further interest rate increases. 

A good knowledge of your existing debt will also allow you to plan sufficiently for the future in terms of expenditure and what you can borrow in the future. 

Review overheads 

Higher interest rates can make it more expensive to run your business and ultimately stunt its growth, so it is a good idea to regularly review your overheads and look at any processes within the business that can be streamlined.  

As part of this, look at renegotiating contracts with suppliers and switching to more cost-efficient lightbulbs for your office.  

Any small change that can be made to save money will benefit the business in the long run.  

Reviewing and adjusting prices 

Increasing the prices of your products and services can often seem like a risky move, with the worry of affecting your consumer base.  

However, consumers will also be aware of the rise in interest rates and will be for the most part understanding of any price increases that follow. 

Additionally, reviewing the current prices may highlight products and services that are below the current market rate, so increasing prices will not come as a surprise to most consumers.  

Managing cash flow 

Reviewing your cashflow will make it easier to see how rising interest rates will impact your business.  

Frequently monitoring where money is coming and going will help forecast your cash flow for the future and allow you to make the necessary cash flow amendments when needed.  

Reviewing the financial situation of your business, from debt evaluation to price adjustments, is crucial to overcoming any problems linked to the rise of the Bank of England and HMRC interest rates.  

It is also good practice, in general, to keep your business financially healthy and to prevent stagnation and continue business growth. 

For more advice about interest rates and how they affect your business, contact us today.