The Bank of England has just reduced its base interest rate to 4.00%, the fifth consecutive cut since August 2024 and the lowest level since March 2023. While headlines focus on mortgage holders and savers, this decision has significant implications for small and medium-sized businesses (SMEs) across the UK.
But what does this really mean for business owners who need funding to grow, stabilise, or simply stay afloat? Will loans get cheaper? Will banks start lending more freely? And where should businesses turn if they’re turned away by traditional lenders?
In this article, we break down the interest rate cut and explain what it means for business funding in 2025 and beyond.
Why the Bank of England Cut Interest Rates to 4.00%
The decision to lower the rate from 4.25% to 4.00% followed an unusual deadlock among the Bank’s policymakers, requiring a second vote to reach a conclusion. This highlights just how delicate the current economic situation is.
Key reasons for the cut include:
- Slowing UK economic growth: GDP growth is forecast to fall to just 0.1% in Q2 2025
- Rising business costs: Wages and national insurance increases are pushing up prices
- Global pressures: Food and commodity prices are still volatile due to adverse weather conditions and supply chain disruptions
The cut is intended to support economic activity by making borrowing cheaper and stimulating investment, but it comes with caveats.
Borrowing Might Get Cheaper, But It’s Not Guaranteed
A lower base rate can lead to reduced borrowing costs for businesses — particularly if:
- You have a variable-rate loan or are about to refinance
- You’re seeking a bank loan tied to the base rate
- You have a tracker facility or flexible lending terms
However, many business loans, especially fixed-term agreements or products from non-bank lenders do not automatically adjust with the base rate. Lenders also price loans based on risk, not just the Bank of England’s benchmark.
Even if base rates drop, businesses may still face:
- High interest rates on unsecured loans
- Additional fees or arrangement charges
- Strict affordability tests
So, while the overall environment may improve, lower interest rates do not guarantee lower-cost loans for all businesses.
Banks Can Still Say “No” to Many UK SMEs
Despite the cut, banks remain cautious lenders, particularly for businesses that don’t meet traditional credit criteria. A rate cut does not change their underwriting policies.
Many SMEs struggle to access bank loans due to:
- Trading for less than 2 years
- Irregular or seasonal cash flow
- Thin or impaired credit profiles
- A lack of property or asset security
- Operating in sectors considered high-risk or “non-core” by major lenders
Banks are also factoring in rising inflation risks, wage pressures, and low consumer confidence. The result? Many perfectly viable businesses still face rejection from traditional lenders, even as the cost of borrowing falls on paper.
Private and Alternative Lenders Are Filling the Gap
While traditional banks may be cautious, private and alternative lenders are actively deploying capital — and many are not bound by the Bank of England base rate at all.
These lenders include:
- Fintech platforms offering unsecured loans, revenue-based finance, or revolving credit
- Private credit funds and non-bank institutions focused on mid-market business lending
- Specialist lenders offering invoice finance, asset finance, merchant cash advance, or bridging loans
The key benefit of these lenders is flexibility. They often look beyond the numbers and assess a business on its potential, contracts, or specific circumstances.
At Funding Pool, we work with dozens of private and specialist lenders that continue to fund SMEs across a wide range of sectors, even when banks say no.
How UK SMEs Can Navigate Funding in a Volatile Environment
With interest rates falling but economic uncertainty still high, business owners need to make funding decisions carefully. Here’s what to keep in mind:
1. Don’t assume borrowing is cheaper everywhere
Even if the base rate is lower, the cost of borrowing depends on your lender, product type, and credit profile.
2. Shop around – not just with banks
The best funding option for your business might not come from a high street bank. There’s a growing ecosystem of lenders who operate independently of the big banks.
3. Understand the total cost of capital
Always look beyond the interest rate. Ask about arrangement fees, early repayment charges, and hidden costs. Compare APR and total repayment amounts, not just headline rates.
4. Be prepared before applying
Whether you’re applying through a bank or broker, make sure your financials are clear, your use of funds is well defined, and your business plan is credible.
How Funding Pool Can Help
At Funding Pool, we act as a whole-of-market finance broker for UK SMEs. We help business owners:
- Identify the most suitable funding options
- Access lenders who understand their business model
- Navigate complex or urgent finance needs
- Get funded quickly, often in days, not weeks
Our lender panel includes a range over over 50 different lenders from high street banks to specialist funders. Whatever your circumstances, we can guide you to the right solution — even if you’ve been turned down elsewhere.
Final Thoughts
The Bank of England’s interest rate cut to 4.00% is a positive signal, but not a silver bullet. Borrowing may become more accessible for some businesses, but many SMEs will still face barriers if they rely solely on banks.
If you’re planning to grow, manage cash flow, invest in equipment, or simply strengthen your working capital, now could be a good time to explore your options.
Speak to us today for a no-obligation funding review and see what’s possible for your business.