Interest rates: experience, perspective and taking the media with a pinch of salt

Posted: Tuesday, 21 February 2023 @ 09:49

All businesses face a balance between handling the needs of day-to-day operations and acting in the long-term interests of the company. When it comes to cash flow, there is an obvious and immediate need to have resources readily available, which can dominate thinking, especially when times are more challenging. 


Perspective and the media 

At the moment, you can't move for a headline about rising interest rates. For some, they will be a bigger issue than others, but either way they change the landscape not just because they're higher than they have been in a decade, but because they keep changing. The change in itself is unsettling for businesses which generally depend on being able to plan ahead.

Within our team we have a number of people whose experience within the leasing and asset finance industries spans more years than they may care to admit. As a result, they might not have seen it all but they have certainly seen a lot, and with that experience comes some perspective - something which is not always reflected in the media.

Peter Jamison, who heads up Rivers’ incubator block discounting service says: "The news is full of dramatic headlines, and yes these things are happening. However, if you go out into the world, people are doing things. They are running their businesses, they are transacting deals, and in their personal lives they are going out and getting on. I don't think the media always gives people enough credit to manage their own affairs. People are ultimately survivors and will arrange themselves and will come through this."

Building business resilience

At the time of writing, interest rates are 4%, which is proportionately high given that we have had a decade or more of very low rates. However, some of us can remember when they reached 17% in 1979. That is not to downplay the challenges of today or otherwise - businesses are used to a particular climate, and many are not built to withstand the changes they are currently experiencing. However, for those who are willing and able, it does raise conversations around what can happen beyond the control of a business so that you can plan for economic headwinds.

Stephen Bassett, one of our Non-Executive Directors, noted: "People are not used to interest rates going up at this rate, but this is closer to the norm than what we've experienced in the last decade. So, if you’re running a business based on the interest rates of the last 10 years, it might be more fragile than it ought to be. In the short-term, if you can, it's best to try not to panic or be too alarmed by media hype - we're likely to get through it and the Bank of England is making noises to that effect. The situation is a reminder to think about how to make your business more resilient, and one way of doing that is through sensible cash flow, which is where measured borrowing can help you be a bit smarter. Instead of buying the new machine outright, lease it so that you retain cash to operate the business each day. Think ahead and lease it or borrow money at fixed rates, so you know where you stand and you have cash in the bank." 

Rivers offers loans and leases operate on a fixed interest rate, so as soon as a transaction is agreed, you know where you stand from the outset and what your repayments will be each month. The market might change but our arrangement with you won't. 

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