Small businesses should shop around to get the best fixed-rate loans and take their time to get the right deal, the Forum of Private Business has warned.

With interest rates at their highest level for seven years and expected to rise further during the remainder of 2007, the small business lobby group is advising companies to make sure they get the best possible rate when applying for a business loan.

According to Frank Peck, the organisation‘s economic adviser to the FPB and professor of regional economic development at the University of Central Lancashire, further interest rates hikes could restrict the growth of small companies.

“The problem with further rate rises is that uncertainty discourages investment, particularly for the expansion of smaller businesses who may have worries about the increased cost of borrowing,” he said. “It is much more difficult for smaller firms to absorb short term variations in these costs.”

But he added that there were signs in April that inflation had dropped, meaning that interest rates could yet remain on hold.

“What is interesting about the May rise in interest rates to 5.5% is that the decision of the MPC was unanimous, whereas meetings earlier in the year involved split decisions,” said Peck. “The reason for this, quite simply, is that inflation unexpectedly rose in March to 3.1%, moving well away from the target for the Treasury.

“However, we now have the April inflation figure which shows a drop to 2.8%, suggesting that previous rises in interest rates are having an effect,” he added. “Much depends on whether monetary policy committee members think they have done enough already and wait to see what happens when the May figures are published.”

The Bank of England‘s monetary policy committee voted to keep rates at 5.5% in June.