Fears for small firms if there are further rate increases

It is widely assumed that small businesses could be worst hit if interest rates continue to rise, since both suppliers and customers will be forced to ‘tighten their belts’.

This is the claim from online credit checking company e-bcm, believing smaller companies may face cash flow problems should their customers fall behind in their payments, as a knock on effect of further interest rate increases.     

E-bcm’s Commercial Director can see how a small firm could be doubly hit in the pocket, for instance, if customers limit their borrowing and/or struggle to pay the company, the firm in turn may have difficulty in keeping their own bank happy, especially since many small businesses carry a loan or overdraft facility.

He believes that many smaller firms just keep afloat in when the economy is level, but soon experience cashflow problems when the situation changes.

Furthermore, he predicts that the number of small firms going out of business will increase if there are continued rate rises throughout 2007.