The impact of rising costs on affordability for small businesses in the UK

Published August 2023

Written by John Griffiths

For over ten years, John has been engaging with clients in the UK to help them better understand their commercial customers, advocating the smart use of business data to support them not just from a credit risk perspective, as is his current focus, but more broadly in assessing their needs in the market.

Credit and risk in the changing economy: Perspectives for lenders and small businesses

After a long period of low interest rates, we’ve recently seen unprecedented rises in the Bank of England base rate to levels not seen in more than a decade.

This is causing significant concern for consumers and is being compounded by the ongoing cost-of-living crisis.

But while the implications of current economic uncertainties are grabbing headlines for how household finances are being affected, underreported is the impact these uncertainties are having on businesses which might not be able to absorb these temporary operating cost increases.

This topic is the subject of our podcast, hosted by FSTech, with John Griffiths, Experian’s Market Engagement Director, Credit & Risk, Business Information, discussing our latest Affordability Report which outlines how rising costs have impacted small businesses in the UK.

The report, at least initially, doesn’t paint a pretty picture: 51% of respondents believe they will be less profitable this year versus 2022, with 7% now expecting to be unprofitable. Some 62% of respondents also said that they are experiencing more stress at work, because of the high cost of doing business.

Importantly, two-thirds of small businesses say that the legacy of the cost-of-living crisis has impacted their business.

However, it is not all doom and gloom in the small business world. The report highlights hints of optimism returning for small businesses, with most confidently able to manage with their existing credit agreements and – positively for the financial sector – a large majority of businesses are using credit to improve cashflow, or as a financial safety net – rather than to meet rising day-to-day expenses.

So, while we may be seeing increasing interest rates, economic performance has been resilient, despite challenges in the latter half of 2022.

How can we help?

Now more than ever, lenders should focus on customer affordability.

Experian can help you with this. We are working directly with banks and financial services to build an affordability assessment that works for both you and your customers.

Using a balanced assessment of income vs expenditure, we can define the amount your commercial customers could suitably afford to borrow.