Trump, the markets and interest rates – how you can learn to deal with uncertainty

Now, we’re seeing a marked increase in enquiries within our Debt Advisory team across all sectors and situations, with the majority towards property development finance and partial exits from trading businesses. Some of the many reasons are:

· Renewed positivity in the market e.g. expectation of relaxed planning laws. Many developers we speak to are sceptical of the Government’s numbers and ability to reform the planning system, supported by a large reductions in projects commencing. Nonetheless they need to prepare just in case, as evidenced by the Government’s announcement several days later of their intent to improve the planning system

· Majority shareholders realising that they don’t have the energy to battle market forces indefinitely, or have simply had enough of being ‘on hold’ and want to diversify

· There’s only so long companies can put plans on hold, otherwise standing still might not be good enough to stop you going backwards

· Simple prudence

The markets are concerned with Trump’s Executive Orders and are therefore closely monitoring their impact. It’s easy to find a list of signed Executive Orders online – The key is to look at why? What is the real reason behind them? Whatever your political persuasion, it’s generally accepted that Donald Trump ‘gets things done’, and if you delve a little deeper the headline is never usually the end goal, as the objective is more strategic. A couple of examples would be:

- Protecting the borders and stopping mass migration into the US isn’t the sole goal. This enforcement action will allow the US to make a major dent in illegal drug importing, and particularly fentanyl. The longer-term effects are expected to be a decrease in drug addicts in the US, less pressure on the health system, more people employed, increased productivity and a booming economy

- Import tariffs of 25% worldwide will hit Canada and Mexico strongly. What isn’t widely reported this side of the Atlantic is that this is likely to be the opening salvo from Trump to negotiate better terms for the US in the United States, Mexico & Canada free trade deal (USMCA), which is due for review in 2026

We could also discuss the recent spat with Zelenskyy, which from a wider perspective seems driven by a desire to show how much clout the US has and to force an end to the war. The additional benefit for Trump is that by being willing to walk away from Europe, he has ensured defence budgets have been risen again, something he also managed to achieve during his first term in power.

So, the trick is to look forward and understand the wider context, which surprisingly few political commentators have picked up on. The steel tariffs are an obvious one, whereby most of the mainstream press are commenting on the impact to the UK steel market and ‘how could Trump do this to us?’ The reality is the UK’s steel market was likely insignificant in Trump’s thinking when implementing the tariffs, as described above.

The challenge of course, is that the headlines still come as a surprise, so the markets are impacted by the shock and uncertainty, which doesn’t help companies looking to borrow funds, when certainty of funding and market behaviour are preferable. Nevertheless, businesses still need to borrow money, so the question is whether these regular, sudden, changes in the markets going back to Brexit and beyond are the ‘new normal’? Does that in and of itself mean the markets have created a kind of stable instability, or a fragile peace like the Demilitarised Zone on the North Korea / South Korea border that could implode at any point?

The bottom line is the world will keep turning and those that adapt best will succeed, as always. My focus is to take the above in the context of my role in helping companies raise debt safely and efficiently within the current environment to, ultimately, help them succeed.

One of the key messages over my multiple blogs has been the positive emergence of the Private Credit market (also known as Debt Funds) over t recent years. But with that, and in an unregulated marketplace, challenges can also arise. I wrote an article at the time of the mini budget regarding the importance of knowing who funds the funder i.e. where is the cash ultimately coming from to fund your project/growth? Think of it like a reverse KYC (Know Your Customer) check – do you do your due diligence on funds in the same way that the funds will on you and your company?

For example, it is widely known one particular UK lender to SMEs pulled out of a number of deals at the last minute a couple of years ago. What is less widely advertised is the reasons behind why they pulled out.

This particular lender only had one funder (a huge risk in itself) and it was an overseas hedge fund. At the time, the UK market was providing plenty of loans and had liquidity, so it was not a decision based on the UK economy. The UK lender told clients, advisors and the market as a whole that any decisions were at the UK Board’s sole discretion. Once deals were approved at the first stage Investment Committee, the funds were committed and the deals would be completed (obviously subject to no material changes).

However, the hedge fund pulled rank as some of its riskier investments went south, and without regard to any of the deals with the UK lender, which left prospective clients having to start the process over again and the existing clients treading on eggshells in case their loans were enforced. It wasn’t just the clients who suffered as the lender has since tried unsuccessfully to raise new funds and has no credibility with the Advisor market to engage with them again.

Fast forward to today and there are two important questions to consider:

1. Will Trump’s policies and Executive Orders have an impact on my lender? For example, does the ultimate cash come from someone exposed to Canadian steel tariffs, or who has above average exposure to DEI (Diversity, Equity & Inclusion) funds? The examples may seem extreme to make the point but when it transfers into a loan that you and your company are responsible for, it suddenly becomes very relevant.

2. With the unknown impact of existing and future Executive Orders, does anyone really know how interest rates will be affected? Markets had already priced in an expected 2-3

base rate cuts of 0.25% each this calendar year before recent inflation data which means the markets have re-priced upwards o only seeing two cuts this calendar year

3. So, how does this analysis stand up to another sudden change? How far is an incursion into the Demilitarised Zone allowed to go before it goes too far and drastic action is required?

These three questions should be considered alongside each other, as the worst-case scenario would be a rush to raise debt with minimal diligence, leaving your business with a loan that might have exposure to the above issues and therefore is at risk in two ways: the loan being pulled just before drawdown, or the lender looking to enforce their loan at the first sight of any potential covenant breaches which, in a ‘normal’ world would be the last thing a lender would want to do – see my article on covenants. How to approach a Financial Covenant even if you are unfamiliar with them | Blog | Heligan Group

So, the million-dollar question (or maybe it should be the billion-dollar question these days) is how do I know when to borrow money, and is the lender the right fit for me and my business? Is it better to have a bird in the hand and secure a deal now, potentially benefiting from lowering interest rates if you choose a variable rate offering? Or is it better to wait and watch and hope for the best? As the old military saying goes: ‘hope for the best, plan for the worst’ so now is the time to contact your Advisors and ask the question: ‘how can you help me prepare?’.

Here at Heligan Group we have specialists that understand the markets in our Wealth Management team, the trends in our Investment team and the lenders in our Debt Advisory team.

Between us, we provide a wealth of knowledge to help you prepare, because we see things differently.

Sam Lewis

Head of Debt Advisory

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