What does the Bank of England rate cut mean for small businesses?

As was widely anticipated, the Bank of England cut interest rates in August 2025. This will offer some comfort to small business owners who have had a tumultuous year so far, with rising operational costs and global trade tensions.

At their meeting on 7th August 2025, the Monetary Policy Committee voted to cut the Base Rate by a further 0.25% to 4%. This is their fifth cut since August last year, and takes the base rate to its lowest level for over two years.

So, what does the Bank of England Base Rate cut mean for small business owners? We look at the theoretical positive impact of such a cut.

Lower borrowing costs 

Put simply, lower interest rates mean a reduction in the cost of borrowing. For many small business owners, they may find a new business loan is cheaper than they previously thought. For those with existing debt, such as mortgages or credit cards, monthly repayments may reduce.

A reduction in monthly interest repayments could free up cash flow, giving businesses some much-needed breathing space to help with day-to-day operations.

This will be a relief for those business owners who have been struggling with increased outgoings following the changes to staffing costs and business rates that came into effect in April.

Increased consumer spending

Consumers should benefit from a lower interest rate, with less of their income going towards mortgage repayments and other forms of debt. Lower monthly household costs should, in theory, lead to more cash in people’s pockets to spend with small businesses.  

Increased investment

When borrowing costs are lower, loans are cheaper, and so investment becomes more affordable. Business owners can take advantage of lower borrowing costs to fund growth plans.

Potential economic growth

Lower interest rates are generally good for business. With cheaper loans, more businesses are incentivised to borrow to expand. At the same time, consumers have more disposable income to spend – both of which, in theory, should stimulate the economy. 

How much does a Funding Circle loan cost?

A business loan could be more affordable than you think. Use our online calculator to see what your monthly repayments could be. 

09/09/25: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.