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Myerson's Banking and Corporate Teams are on hand to assist with debt arrangements and equity investment. If you would like to get in touch, please call us on:
The Bank of England ended its run of 14 consecutive interest rate increases in September, halting the base rate at 5.25%.
Ahead of the next rate review on 2 November 2023, Myerson's Banking Team considers its implications for businesses and their operations.
The Bank of England base rate influences many other interest rates.
UK banks base their own internal base rate on the Bank of England's, and it is often used as the benchmark for the interest rate margins within facility agreements and other commercial agreements.
Generally, fluctuating interest rates affect businesses in a number of ways:
The interest rate freeze provides a level of stability, and with the potential for rate decreases in the next 12 months, this may present an opportunity for businesses to start considering new debt or refinancing options, along with opportunities for expansion and investment.
Whilst difficult to predict, the rate freeze may indicate a levelling off of interest rates and increasing market confidence.
Companies may consider entering new debt arrangements to take advantage of more competitive borrowing costs if interest rates remain stable.
Financial facilities available to companies can include secured loan facilities, credit lines (such as overdraft and credit card facilities), invoice discounting or asset-based financing.
New loan facilities can provide capital to invest and achieve growth, be it by investing in research and development, capital expenditure on plant and machinery, talent retention or expanding operations.
Additional capital can also improve the general working capital position of the company, providing a healthier cash flow.
Before entering into them, advice should be sought on the terms of any new debt arrangements.
In particular regarding the repayment profile and any security to be provided to the lender.
Companies that have existing loan facilities may consider refinancing if interest rates remain stable.
By negotiating new terms, businesses may be able to improve liquidity by reducing borrowing costs, for instance, by moving from a variable rate to a fixed rate of interest or by reducing capital repayments.
In turn, this improved financial stability can provide businesses with a competitive edge, providing funds to direct towards innovation, marketing, or acquiring and retaining talent.
An alternative to debt may be a round of equity investment, be it a private investor, angel investor, venture capital or private equity.
This may be to repay existing debt arrangements or to raise capital to invest in new areas.
A good example of equity investment being utilised to refinance debt is the recent equity round carried out by Liverpool Football Club.
Funds raised from the private equity raise will be used to repay existing debt incurred to fund the redevelopment of training facilities and the expansion of Anfield.
This approach can help to remove debt from the balance sheet and also offers new opportunities provided by investors who may contribute industry knowledge, networks, and strategic advice.
Myerson's Banking and Corporate Teams are on hand to assist with debt arrangements and equity investment. If you would like to get in touch, please call us on: