Base Rate Falls to 4% – But Are Banks Really Back for SMEs?

In August, the Bank of England cut its base rate to 4% and has remained steady – the lowest in two years. The move comes after a long spell of higher rates that made borrowing more expensive for households and businesses.

For small and medium-sized businesses (SMEs), the big question is: does this make bank loans a better option, or are the same barriers still in place?

Why the base rate was cut

The Bank’s Monetary Policy Committee (MPC) voted 5–4 to reduce the rate from 4.25%. The base rate is one of the Bank’s main tools to control inflation, which is the pace at which prices rise.

Higher rates usually slow spending, which in turn can slow price increases. The Bank targets 2% inflation, but Consumer Prices Index (CPI) inflation was 3.6% in June, slightly up from 3.4% in May. The Bank expects it to fall back toward 2% later this year.

As Laith Khalaf from AJ Bell explains:

"It might seem odd for the Bank of England to be cutting interest rates at the same time that inflation is pulling away from the 2% target.

"However, the Bank's actions are based not on the current inflation rate, which tells us about price rises over the last 12 months, but rather on future inflation, forecast over the next three years. Importantly, the Bank of England's previous forecasts show inflation rising over the course of this year before falling back, so prices are currently evolving broadly in line with what the Bank has been expecting."

For SMEs, this means that while rates are lower, the broader economic picture is still changing – and borrowing decisions should consider more than just interest costs.

Why lower rates don’t solve everything

Cheaper bank loans sound good, but many SMEs still face obstacles:

• Slow decisions in which it takes weeks or even months to get approval.
• Strict criteria where newer businesses or those with imperfect credit may struggle to qualify.
• Inflexible repayments and fixed schedules that don’t adapt to cash flow swings.
• Minimal support where many SMEs feel like a number, not a business partner.

Even with lower rates, these challenges don’t disappear. SMEs still need borrowing options that match how their businesses actually operate.

The SME reality check

Timing is often everything for SMEs. A retailer may need extra stock for a busy season. A manufacturer might need quick funds to expand production after winning a contract. In these situations, speed, flexibility, and support matter more than shaving a few points off an interest rate.

This is where alternative lenders can help – moving faster, tailoring terms, and taking a personal approach to each business. They consider the real story behind a business, not just the numbers on paper.

Why alternatives still matter

The base rate cut is welcome news, but it doesn’t change the fact that SMEs need more than affordable debt. They need finance that is timely, adaptable, and supportive.

That’s where providers outside the high street continue to step in. By combining competitive products with faster approvals and personalised service, alternative lenders help SMEs bridge the gap between affordability and accessibility.

What SMEs should take away

The base rate cut is significant news for the economy, but for SMEs, it’s only one factor in funding decisions. Affordable loans matter, but access, timing, and support often matter more.

Businesses should keep an eye on market changes, but also make sure their funding options are flexible and practical. Having access to lenders who understand the challenges of running a business can make the difference between missing an opportunity and taking it.

Looking ahead

The Bank of England’s decision signals a potential turning point in the economic cycle. But SMEs don’t just need cheaper funding – they need funding that can move at their speed, adapt to their cash flow, and provide support when it matters most.

Having options that offer a mix of flexibility and responsiveness will remain essential for helping SMEs keep up and move ahead.