The sad truth is that whilst we have a very low base rate the cost of borrowing for small businesses has increased substantially. I am not saying that it is the banks’ fault because clearly when you get 3-4% on your deposits a bank cannot lend at a lower rate. However, what that means is all the talk about “low base rates are of benefit to the economy” doesn’t add up. It seems that base rates are no longer a benchmark. So why don’t we just abolish it and let banks quote whatever rates they want. Many Building Societies work like this and they refer to their own variable rates.
However whichever way we go, it is clear that for the foreseeable future the cost of borrowing for small businesses will remain high and when base rates start to increase the cost of borrowing will continue to remain high. It is therefore of paramount importance that businesses analyse their finance requirements in great detail to make sure that they borrow the right finance for their business.