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Why interest rate cut puts spotlight on alternative finance

The widely expected cut to interest rates – to a record low of 0.25% – has done little to reassure small business owners. The ongoing uncertainty underlines the importance of alternative finance to SMEs.

If the Bank of England’s decision to lower interest rates was meant as tonic to instability, then the small business sector didn’t get the memo. The response to the cut has been mixed. There have been those that have welcomed the move, pointing to the opportunities presented by cheaper borrowing, in particular for the smallest of SMEs. However, at the same time, there are those that have interpreted the move negatively, as a harbinger of recession that will put funding under risk, especially overdraft facilities.

As the reaction suggests, no one is really sure what will happen and as such, far from alleviating the uncertainty that has plagued the business sector this year, the reduction in interest rates has only added to it. A new study on business confidence further highlights the level of instability. The new BCM Confidence Index has reported a significant decline in business confidence in the wake of the EU referendum, with its rate that it uses to measure confidence now in negative territory.

Hence, at the moment, it seems that small business finance may become even harder to access, at least from traditional lenders, just at a time when these companies need backing to maintain their forward momentum. This is why alternative finance services such as invoice finance, asset finance and peer-to-peer lending have become so important to and so widely used by small businesses. Never has flexibility, accessibility and affordability been so critical for SMEs.

To find out more about A&T Business Associates services, contact us on 01903 602211 or info@atbusinessassociates.co.uk.

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