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Why low base rates do not result in low interest rates for businesses!

Published 21/08/2012 09:03:00

Many businesses are questioning why the interest rates for business loans have not fallen in line with the reduction of base rates. One explanation is that banks restore their balance sheets and have increased the margins they charge: the days of 1% over base are simply gone – it is now in excess of 3 or 4 per cent.

However, we discovered another issue which affects businesses. Many banks provided their loans and commercial mortgages with minimum interest rates at say 4%. This simply means that when base rates fall below 4%, the rates charged to clients will not fall despite the current economic climate.

In other words, the policy decisions made by the Bank of England and the Treasury will not reach small businesses – could this be the reason why small businesses are not enthused with optimism to expand and develop?

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