5 November 2026 | 3-minute read
The Bank of England has increased its base rate from 3.75% to 4%, its first rise in over three years.
For businesses already managing rising costs and pressure on cashflow, another interest rate increase may not be welcome news.
But does this mean borrowing will become more expensive? And should businesses reconsider their plans?
Not necessarily.
Will your existing business borrowing cost more?
That depends on how your finance is structured.
If you have a fixed-rate business loan, your repayments will generally remain unchanged during the agreed fixed period.
However, if your borrowing is on a variable rate linked to the Bank of England base rate, your interest costs could increase.
For example, a business with £100,000 outstanding on an interest-only facility directly linked to Bank Rate could pay approximately £250 more in annual interest following a 0.25 percentage point increase, assuming the full rise is passed on.
Not all lenders price their facilities directly against Bank Rate, so it’s worth checking your existing agreement before assuming your repayments will change.
What if you’re looking for business finance?
An increase in interest rates doesn’t automatically mean businesses should put their borrowing plans on hold.
Lenders look at several factors when assessing an application, including trading performance, profitability, cashflow, existing commitments and the purpose of the borrowing.
A business might be generating healthy turnover and reporting a profit, but that doesn’t necessarily mean it has enough cash available to comfortably meet additional repayments.
For example, sales could be increasing while customers are taking longer to pay or supplier costs are rising.
From a lender’s perspective, it’s not simply about whether a business is profitable. It’s whether the business can afford the borrowing.
Don’t overlook the wider impact on cashflow
Higher interest rates can affect businesses beyond their own borrowing costs.
Customers may reduce spending, delay purchases or take longer to settle invoices as financial pressures increase.
Combined with rising operating costs, this could place additional pressure on cashflow, even where sales remain relatively stable.
Reviewing your cashflow forecast can help you identify potential shortfalls, understand upcoming commitments and make more informed financial decisions.
It can also help demonstrate to lenders that you’ve considered how changes in trading conditions could affect your ability to repay.
Should you delay your borrowing plans?
Not necessarily.
For some businesses, borrowing remains an important way to support growth, purchase equipment or manage working capital.
However, before taking on additional finance, it’s worth considering whether the expected benefits justify the cost and whether repayments remain affordable if trading conditions change.
Waiting for interest rates to fall isn’t always the right answer, particularly if delaying an investment could mean missing an opportunity.
The important thing is understanding what the finance will achieve and whether your business can comfortably support it.
Looking beyond the headline
A 0.25 percentage point increase might seem relatively small, but for businesses already managing tighter margins and existing commitments, it’s the combined impact that matters.
Today’s announcement doesn’t mean businesses should stop investing or seeking finance.
It does reinforce the importance of reviewing your financial position and making borrowing decisions based on realistic cashflow expectations.
The right funding decision isn’t simply about securing the lowest interest rate. It’s about finding finance that’s appropriate, affordable and supports your business objectives.
Considering business finance?
At The Funding Step, we help businesses explore commercial funding options based on their circumstances and objectives.
If you’re considering borrowing or reviewing your existing finance arrangements, we’re happy to discuss your requirements.
Discuss Your Funding Requirements
Source: Bank of England, Monetary Policy Summary, 5 November 2026.