I was discussing this with a Turnaround colleague and he wrote this to me which I thought you may find of interest.
When will the next increase in interest rates come? Soon? Six months? Twelve months?
Interest rates generally rise and fall gently over a period of time. Over the last 30 years they have followed a steady downward trend. In 1981, Base Rate of 12 per cent was considered to be low, in 1988 7.5 per cent was a low point and it fell further to 5 per cent in 1999. Now we are at 0.5 per cent so the next movement is likely to be up.
How would that affect the interest you are charged by your bank? If you are borrowing £250,000 and you pay 3 per cent over Base Rate, you will be paying £8,750 each year in interest charges. If Base Rate increases to the low point of 3.75 per cent in 2003, you will be paying £8,125 more each year – almost double your current payments. And if it goes back to 5 per cent …. £11,250 will disappear from your bottom line!
Where will the money come from? Price increases? Not so sure. More sales? Which customers will buy more from you? Will your customers survive an increase in interest rates?
If you recognise the problem you could face and would welcome my advice, do contact me at firstname.lastname@example.org. TGBA (Turnaround Group Business Advisors) is a nationwide group of experienced business professionals who have guided many companies through challenging times.