ABC Finance Issue Capital Raising Advice To Business Owners
Commercial and specialist finance brokers ABC Finance have advised business owners looking to raise finance in 2023 on how to do so in a rising interest rate environment. We caught up with Commercial Lending Director, Gary Hemming to find out more. In the face of a challenging economic environment, it’s more important than ever that you make the right financial choices. The key tips are as follows:
Carefully consider fixed vs variable interest rates
While a fixed interest rate may seem like the obvious choice when rates are climbing, you should always compare the current cost of fixed borrowing against variable rate products. In rising interest rate environments, you may find that the current rates charged on variable products are far lower than the fixed equivalents.
When this is the case, consider the impact of rate rises and whether you feel rates will rise by the amount needed for your interest rate to exceed a fixed rate.
Seek secured borrowing where possible to keep interest rates down
When you offer a lender collateral, either through offering an asset or by taking a loan secured against property, you will usually get a better deal.
Offering a lender collateral reduces the risk to them should you default on the loan. This reduced risk is rewarded with lower interest rates, longer repayment terms and often, lower monthly repayments.
While you’ll get a better deal using secured borrowing, your asset will be at risk should you fail to keep up repayments, so this must be considered.
Never borrow more than you can afford to repay
Make sure that any money you borrow is affordable both now and if interest rates increase further. Checking how rate rises impact your monthly payments and assessing whether they will remain affordable is known as stress testing.
You should always stress test your potential facilities as the risk of being caught out by rising interest rates is something that can quickly lead to missed payments and a reduction in your credit score.
Seek professional advice before borrowing money
Whenever you borrow money, especially where the loan will be secured against your property, always seek professional advice. A good mortgage or secured loan broker will help you to reduce the risk of borrowing.
Where possible, look for professional advice from a Financial Conduct Authority (FCA) regulated broker or lender. FCA regulated professionals are held to a higher standard and are more likely to be reputable.
Follow traditional best practices for borrowing money
On top of the current tips, it’s important that you always follow the usual best practices when borrowing money:
