The Bank of England’s (BoE) interest rate cut of .25 percentage points, is aimed at bringing in some much needed stability, before helping fuel economic growth. Whether it will or not, remains to be seen. It should, however, provide the economy with a much-needed boost in confidence to help mitigate further post-Brexit uncertainty and it definitely shouldn’t make things worse.
Here are some of the benefits we should expect to see.
More suitable funding
Access to suitable finance is an ongoing challenge in the marketplace for most of the UK’s SMEs. In principle, the .25 percent cut should reduce the cost of business critical funding and give small businesses a greater chance of establishing themselves. Our economy needs good entrepreneurs to succeed yet has not always supported their endeavours. Overcoming this hurdle would be a major step forward in helping to stabilise the economy.
The interest rate drop should encourage people to spend more. When the cost of borrowing is reduced, more money circulates – which helps move the economy in the right direction. This is especially good news for small businesses and new start-ups. Their capital reserves are limited and a dry spell in consumer spending could see a decrease in turnover challenge their very existence. In fact, their survival depends on increased profits, which requires a loyal customer base that can afford their goods and services.
As market confidence and consumer demand increases, so too however, does the requirement for cash flow funding. With this in mind, lenders will have to be prepared to provide SMEs with the loans they need. The question is, will this result in banks becoming more agreeable and flexible by way of adaptation? Or, will the lion’s share of the growth be seen in the alternative funding market place?
The interest rate cut is certainly no guarantee that traditional institutions will open their doors wider to accommodate more SMEs in need of financial assistance. From our point of view though, it’s great news for independent and alternative lenders as there should be increased demand for our services. The important thing now is to make sure that the funding solutions on offer are relevant and tailored to meet small business’ needs.