What do high interest rates mean for small construction companies?
As inflation in the UK hits a 40-year high, interest rates have also risen which means that construction companies will need to tolerate a higher cost of operating.
Keith Tully of Real Business Rescue explains how high interest rates are affecting small construction companies on a day-to-day basis.
Operating a construction business while interest rates are high will require a rewrite of the rules for borrowing, repaying, budgeting, and forecasting growth. In regard to the price of materials, Suppliers may respond to high interest rates by raising the price of materials and supplies to cushion themselves against the increased costs of operating a business. Although a price hike may deter customers, this move may be necessary to maintain profitability. Without increasing prices, company overheads can quickly snowball, neglecting other areas of the business that will require a top-up, like trade credit accounts, staff wages or pensions.
As interest rates increase, funds originally earmarked for projects may now be insufficient as supplies cost more than they initially did. While higher interest rates will mean an increase in overheads, the number of new projects may likely slowly decline, including the downscaling of existing projects yet to undergo construction.
See the full Report on The Federation of Master Builders Website - What do high interest rates mean for small construction companies? | FMB, Federation of Master Builders