The effect of the Base Rate rise on SMEs, and what founders can do to mitigate it

Rowan’s banking consultant Iain Duncan weighs in on the Bank of England’s base rate rise to 1.25% on Thursday 16th June.

“Last Thursday saw the Bank of England’s Monetary Policy Committee raise the Base Rate to 1.25%, the highest rate in the UK for 13 years.

With inflation now expected to peak at up to 11% in the Autumn, well beyond the government’s target of 2%, there is widespread expectation that there will be further rises to come, with many analysts believing we will break through the 2% barrier by the end of the year.

Normally, with growth faltering (it is now expected that GDP will contract by circa 0.3% in Q2 of 2022), there is a disinflationary implication, however, there seems no signs of this in the UK with much inflation being driven by rising energy and food costs.

According to UK Finance, lending to SMEs grew £0.1bn to £4.9bn in Q122, with the most popular form of bank lending for businesses still being overdraft. This 0.25% increase will be passed on immediately to SMEs, representing an additional cost of £12.25M per annum to already hard-pressed business owners.

So, what can founders do to mitigate this cost?

Well, speaking with your funder on a regular basis is never more important to ensure you have the right structure of borrowing for the company’s needs. There are still several businesses out there with CBILS/BBLS, which are now incurring interest and require monthly repayment of capital, whilst holding cash on deposits (earning little/no interest).

More cost-effective and flexible borrowing options could be available for those businesses. For companies with consistent long-term borrowing needs, who want certainty of borrowing costs, it may be worth considering fixing the interest rates for part of, or for the remaining duration of the loan. It is worth considering however, that fixed rates may well be at a premium to present variable rates.”

For further information, or support in seeking bank funding, please do contact Iain below.

Email:, Telephone: 07963 308096