Are you ready for interest rate rises with your property or with your business borrowing?
The news today comes with mixed messages – the good news is that UK unemployment has fallen slightly from 7.7% yo 7.6%, which shows the UK economy is improving.
However, if you owe money on a ‘Non-Fixed’ interest rate basis, then this is a step closer to interest rate rises, albeit a small one.
The still relatively new Bank of England governor Mark Carney says there is a 40 per cent chance his threshold for interest rate rises could be met by the end of next year. Carney said that “Interest rates should not rise until unemployment falls below 7 per cent unless inflation was consistently above 2.5 per cent”.
So, I like the idea that the UK economy is gaining traction and moving forward, but I’d prefer my loans to remain at the all-time low! The FTSE 100 didn’t like the news this morning and sees this as a negative, rather than as an economic positive moving down 96.79 points or 1.44%, which is interesting.
I had myself already put in place over payments on my property interest only loans and set up investment vehicles to put together a lump sum for down-payment. I have also recently used cash to purchase equipment and assets in my business, to avoid having too high gearing, so that the impact of a rate rise is kept to a minimum.
Bank lending for small business – don’t blame the banks.
It’s now five years since Britain first dropped into recession and during that half decade there have been regular growls of complaint from small businesses about the raw deal they have been getting from the banks. The Federation of Small Businesses has insisted that the flow of credit has dried up.
There is an argument that then business bank lending is a demand problem not a supply problem. There is money available if only small businesses apply for it, of course they will need to score correctly through the usual credit referencing, but assuming they do, then the banks are certain out there to lend and at great rates.
I have recently spoken to my Lloyds bank manager and he confirmed this. They are open to lend and have targets, but he is finding it difficult to meet his targets, as the demand is not there and businesses are not lending due to a level of caution. His words were ‘until people think that tomorrow will be better than today, they will not spend and business owners will not lend’.
I was also recently invited, as a small business owner-MD, to the recent Southampton Santander Breakthrough event, which was attended by non less than Ana Botin (Santander’s UK CEO). Mrs Botin takes the time to present at these events and you can see her commitment to small business growth. At these Breakthrough events they have great motivational speakers and the one I recently went to in Southampton was presented at by Lord March, founder and owner of the Goodwood Festival of Speed.
As a business owner, even if you don’t need lending from bank, it is worth attending anyway just to listen to the motivational speakers and to hear Mrs Botin speak about her passion towards small businesses, having been a business owner herself.
As an entrepreneur myself, I see this as a great strength for the bank’s ‘leader’ to really understand what it is like to be on this side of the fence. Take a look at the terms of this lending and so long as you are a small business from their point of view you should be able to utilise this mezzanine lending. This link is to the FAQs for bank lending for small business through Breakthrough, but the main one is your turnover needs to be at least £500,000 – Breakthrough FAQs. The main thrust is that this bank is certainly open to lending to small businesses.
Even the Bank of England’s latest credit conditions report suggests that the banks may have a point, since there was a “significant” drop in credit demand from small companies in the first three months of 2013. So what is needed is some confidence from business owners.