Iran war could be ‘final nail’ for some Cornwall firms

For small firms across Cornwall, the cost of borrowing was meant to be heading in one direction. Down. A specialist debt adviser with an office in Truro says a conflict thousands of miles away has changed the maths, and for some businesses already running close to the edge it could prove decisive.

Azets, a UK top 10 accountancy firm with offices across the South West including Truro, works as a specialist adviser to small and medium-sized businesses. Mark Barrie, its head of debt advisory, believes the ongoing war in Iran, which began in February and continues sporadically, is likely to prompt unexpected interest rate rises that will push up the cost of borrowing and curb investment.

A squeeze that could bring casualties

“It is a tough time for SME businesses what with this and the knock-on effects of all the other pressures they are currently facing adding up to a big squeeze on margins and it could well lead to casualties,” Mark said.

“I speak to business owners every day of the week, with sectors such as manufacturing, logistics, haulage, hospitality and construction particularly affected, and there is a general feeling of uncertainty.”

Azets covers the South West, home to around 235,000 VAT and PAYE businesses. Nationally, the SMEs it advises make up 99% of the UK’s 5.7 million businesses and employ more than half the workforce, so any tightening in their access to cash tends to be felt widely.

Rate cuts put on hold

Mark said that before the war it was believed Bank of England base rate reductions would have been scheduled for 2026, with the rate likely to have been around 3% by the end of the year or the start of 2027.

“Not only has that been put on hold, but most economists and commentators are suggesting that there may be one or two hikes the other way from the current rate which has been held at 3.75% since January,” he said.

“Therefore, many people either planning or considering whether to take finance would have believed the cost of borrowing to be coming down. It is not surprising that there is a reduced appetite for debt which matches the fewer lending options being available.”

‘The final nail in the coffin’

“The worst case scenario now is that we are going to see some casualties, some businesses which will be seen in the insolvency and administration numbers,” Mark said.

“Some just think that loading additional debt, to take on new projects or new staff or for marketing or whatever else, is the answer out of this, but some of them just can’t afford the debt they are acquiring and this will be the final nail in the coffin.

“Others will argue that if they do not do it the business is finished anyway so it’s one last throw of the dice, but some shouldn’t be rolling the dice, they should be calling it a day or streamlining the business.”

Mark has advised SMEs on new strategic initiatives, growth and expansion, and on raising new and additional funding for more than 25 years, alongside a good deal of work with businesses in distress or facing trading difficulties.

One piece of better news

There is an upside buried in the picture. Many of the post-Covid loans SMEs took out, generally on six-year terms, are running off around now, which means reduced repayments to find.

“However, if they are looking to now secure new finance it will be more expensive than previously because base rate was 0.1% or 0.5% and it’s now 3.75%,” Mark said. “This will make SMEs think deeper and longer before they make the leap with investment. Some will put it off, some will do less, some will not do it at all.”

“For the majority of commercial businesses they will be on a variable base rate or a tracked product linked with the base rate. Not many take fixed rates, so that is going to affect them and be front of mind when they consider whether to go ahead with certain projects.”

Shipping, fuel and a longer list of pressures

Higher funding costs land on top of a long list of pressures SMEs are already carrying, from rapid rises in fuel costs and increased employer National Insurance contributions to new business rates, pension contributions, minimum wage increases, higher energy costs, supply chain problems and continuing cautious consumer spending.

“Anyone in textiles or manufacturing or whose goods go through the Strait of Hormuz are also being hit by delays and container prices have gone up, which is what we saw post-Covid, and the cost of air freight has increased as well,” Mark said.

“Also, the high cost of fuel in the UK is affecting, particularly, logistics and haulage companies and also anyone who relies on those sectors to get their supplies or their product moving.”

The numbers back him up. The Drewry World Container Index rose 6% to US$2,712 per 40ft container in late May, driven mainly by higher freight rates on the Asia to Europe route. That was the highest figure since July 2025, though still below the 12-month high of $3,543 in June 2025.

A survey from the British Chambers of Commerce found that 80% of firms report an existing or expected impact from the Iran conflict, including energy price increases, shipping disruption and rises in raw material costs. Manufacturing was seeing the biggest hit, with 68% of firms already affected and 23% expecting to be. Three-quarters of businesses expected their energy bills to rise over the next 12 months, most by more than 20%, and over a third (36%) said they expected difficulty paying those bills.

‘Lift the bonnet’ before you borrow

Mark’s advice to any owner weighing up finance is to look hard at the business before approaching a lender.

“As a debt adviser we are saying to businesses to lift the bonnet and look underneath at the engine of the business and see what the forecasts and cashflows look like,” he said. “That is never going to change as sensible advice for SMEs, to really do some financial due diligence behind things and analysis of where their business is and what it can afford.

“If they can look at that, by the time they approach a lender or an adviser they have got that information to hand and will have a good indication of how the future lies.”

“Of course, businesses should remain vigilant and any with financial worries or who are actually in distress should seek professional advice as quickly as possible to give them the best chance of survival and recovery.”

📷Woman in banker's office signing financial loan for project