Top tips for finding affordable business funding amidst high interest rates

Interest rates are higher than usual, reaching 5% on 22 June 2023¹. This is due to the ongoing increase in the cost of goods and services, known as inflation – which slowed down to 7.9% in June, but is still four times higher than the Bank of England’s 2% target². As a result, it’s likely that your repayments for loans, mortgages and any other money you’ve borrowed have likely gone up, too.

If you’re worried about how you’ll afford higher repayments – you’re not alone. We’re here to help you get the best deal possible on your existing and new borrowing. Check out the below tips on how to navigate the rise in the cost of doing business from Philip King, our Cash Flow Expert with 40+ years of credit management experience.

🤔 What’s business funding? By this, we mean any money you borrow from a lender, such as a bank or alternative company, to maintain or grow your business. Examples of business funding include loans, overdrafts and cash advances.

1. Re-evaluate your existing business funding

Some types of business funding have variable interest rates. This means the amount of interest you pay can change at any time, often based on whether the Bank of England’s base rate rises or falls.

If you’ve got business funding that’s subject to a variable interest rate, you may want to explore moving to a different rate to avoid future increases to your repayments.

2. Think outside the box if you need new business funding

Making multiple business funding applications, especially within a short period of time, can harm your business credit score. So, consider all the options on the market – including non-traditional ones.

Long term business funding to invest into growth

Term loans

Borrow a lump sum of money over a set period of time, which you repay in regular instalments.

  • Some lenders might ask you to secure it against an asset, such as a property, in case you can’t pay
  • The length of time you have the term loan for can vary. This will affect how much you pay in interest rates and charges

Asset finance

Buy or rent machinery, vehicles or other equipment without a large upfront payment. Then, you repay the cost through smaller payments spread over a set period of time.

  • Hire purchase: you’ll own the asset once you’ve made all the repayments
  • Finance lease: you’ll rent the asset, and likely be responsible for insurance and maintenance. Once you’ve made all the repayments, you’ll have the flexibility to choose to continue renting the asset, or return it
  • Operating lease: you’ll rent the asset, but unlike a finance lease, the lender will pay the maintenance costs
  • Contract hire: a provider will find and maintain vehicles for you, whilst you make repayments over a set time period

Short-term business funding to maintain a healthy cash flow

Overdrafts and revolving credit

Access cash as and when you need it. You’ll only pay interest when you’re actively using an overdraft or revolving credit facility, rather than consistently throughout a set period of time. However, avoid using an overdraft to its limit, as this often leads to expensive interest charges.

A credit card

If you can make your repayments before the end of the interest free period, you’ll avoid expensive charges.

Invoice finance

Get cash based on the value of unpaid invoices that aren’t due yet. The more value you have in outstanding invoices, the more you can borrow against them.

A combination of business funding types

Depending on your needs and goals, a blended approach to business funding might be best. For example, you could consider a smaller, short-term loan to secure cash upfront, supported by an overdraft to dip into on occasion. 

3. Look around with confidence

  • Don’t feel restricted to your current bank or lender. Try to avoid feeling pressure – there are lots of options on the market
  • Find the lowest interest rates and arrangement fees. It might be obvious, but these can really build up
  • Find a good finance broker. They can connect you with the best business funding deals. Ideally, find a finance broker that’s personally recommended by someone you trust. The quality of advice you get can vary and you want the best available

Explore new business funding opportunities in your Tide app 💰

We’ve done the hard work for you! If you’re a Tide member, you can quickly and easily view new funding opportunities from our partners in one place – your Tide app. 

View business funding you’re likely to qualify for from our partners in the app. Plus, compare even more options without affecting your business credit score, using our very own SME finance marketplace: Funding Options by Tide.

4. Be realistic before signing anything

Make sure you understand everything about the business funding you’re interested in. It can be hard and expensive to leave a business funding commitment once you’re in. So, you may want to get professional advice beforehand.

An important consideration is whether you can afford to make repayments on time and in full. If you aren’t confident you can, then you may have to take action to improve your cash flow and the sustainability of your business.

5. Don’t over rely on credit

The quickest way to getting cash is often locked away in unpaid, overdue invoices. So, chase what’s already yours! After all, you won’t pay any interest on money you collect from your customers.

To get paid on time:

  • Regularly follow up with customers to remind them to pay you promptly
  • Automate your invoicing process, using tools such as Tide Invoicing
  • Use collection tools such as Direct Debit
  • Refresh your payment terms to suit your industry and customers
  • Offer easy payment options, such as Payment Links

💡 My fixed rate mortgage deal is ending or my rent is increasing – what should I do?

Mortgage rates are increasing rapidly. As fixed rate deals end, your repayments could increase if you own your business premises. Or, you could see an increase in your rent if your landlord passes the rise in mortgage costs onto you.

  • Start looking for the best deal sooner rather than later. The less time pressure you’re under, the better
  • Speak to a trusted mortgage advisor. Their expertise could help you get the best deal
  • Communicate with your customers. Small, palatable increases are likely to be better accepted by customers than a sudden massive rise. So if you have to raise your prices to cope with the increase in outgoings, then consider doing so as soon as possible by a small amount. You can then repeat this over the coming months

Wrapping up

Navigating rising interest rates can be daunting, both in your personal and business life. If you remain flexible, do your research and take action before it’s too late, then you’ll give yourself the best chance of staying afloat during this time.

Sources used for this article (checked as of 19 July 2023):

¹ Bank of England – Why have interest rates in the UK gone up?

² BBC News – Interest rates: Big rise less likely after inflation surprise

Photo by LinkedIn Sales Solutions on Unsplash

Please note that the information in this blog post isn’t intended to be financial advice. Please be aware that you are solely responsible for the decisions you make. You should seek independent financial advice before making any decisions about your financial future.

All business loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Short-term lending can lead to financial difficulty and is not suitable for everyone. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Amina Sinclair-Diallo

Amina Sinclair-Diallo

Midweight Copywriter

Subscribe to our FREE business tips newsletter

    I am a:

    By subscribing you agree to receive marketing communications from Tide.
    You can unsubscribe anytime using the link in the footer of any of our emails.
    See our privacy policy.

    Thanks for signing up.

    Related Articles

    Image of Tide card

    A business bank account that's free, easy to open, and helps you start doing what you love.

    Tide is about doing what you love. That’s why we’re trusted by 575,000+ sole traders, freelancers and limited companies throughout the UK.

    Open an account
    Image of App Store 4.7, 27k
    Image of Google Play 4.6, 3.7k