Are UK Small Business Borrowing Costs Coming Down?

The fall from 2024 has partly reversed

The starting month changes the answer. We analysed 32 monthly observations from January 2024 to August 2026 for each of five Bank of England interest-rate series. The SME measure covers sterling bank lending to UK private non-financial companies within the Bank's size definition.

The average rate on new SME loans peaked at 7.82% in May 2024 within this period. By August 2026 it was 6.63%: a fall of 1.19 percentage points, or 119 basis points. That is substantial relief compared with the peak, but it describes the full period rather than the latest direction.

Since December 2025, the same rate has risen by 0.49 percentage points. It is also 0.28 points above August 2025. The lowest monthly reading in our sample was 6.11% in March 2026; August was 0.52 points higher.

Table notes: UK sterling lending; annualised interest rates; monthly data, not seasonally adjusted. PNFC means private non-financial corporation. SME series cover UK resident banks; the all-PNFC series covers UK resident monetary financial institutions excluding the central bank. The all-PNFC column includes SMEs and larger companies, so the final column compares overlapping borrower populations with different stated institutional coverage. These are averages across lending, not advertised offers or rates available to every applicant.

The Bank of England's August release, published on 29 September 2026, confirms the latest 6.63% SME reading. August was the latest available data month when we checked on 11 October 2026. The next release was scheduled for 29 October.

“Rates are down” therefore needs a date attached. A comparison with May 2024 supports that claim. A comparison with the end of 2025 points the other way.

Fixed and floating loans moved differently

The combined SME rate hides a sizeable difference between new fixed-rate and floating-rate lending. From December 2025 to August 2026, the floating-rate average was unchanged at 6.11%. The fixed-rate average rose from 6.35% to 7.88%.

Table notes: The product rows are separate loan-value-weighted series. The combined rate is not the simple arithmetic average of the fixed and floating rows. Borrower, loan-size, maturity and product mixes can differ between months and categories.

For a borrower shopping for a fixed-rate loan, the category's 1.53-point rise is more relevant than the combined 0.49-point movement. Quoting only the combined change would miss that difference.

It does not establish that a particular lender raised its price by 1.53 points for an unchanged borrower and product. We do not follow identical loan contracts through time. These data describe the lending recorded in each month, and our calculation does not separate changes in pricing from changes in the mix of loans.

The Bank classifies a loan as floating when it is linked to a reference rate that can vary during the loan period. Fixed-rate lending is not linked to such a reference rate during its fixation period. These statistical categories do not supply the reset frequency, early-repayment terms or security requirements of your offer.

Check those terms in the contract before deciding whether the certainty of a fixed rate is worth its cost. The August averages alone cannot identify the cheaper choice over the future life of your loan.

Existing borrowers face a different average

The outstanding-loan series measures the stock of SME loans already on banks' books. It includes loans originated at different times. New lending measures the loans and renegotiations recorded as new business during the reporting month.

The outstanding SME rate rose from 5.76% in December 2025 to 5.95% in August 2026, an increase of 0.19 percentage points. That was smaller than the 0.49-point rise in the new-loan series. In August, the new-loan average was 0.68 points above the outstanding average.

Neither comparison tells an existing borrower what a refinancing offer will cost. Your current fixed rate might remain unchanged until its fixation period ends. A floating-rate contract follows its own reference rate, margin and reset terms. The published outstanding average combines those different arrangements.

An automatic contractual rate reset is also different from a renegotiation in these statistics. The Bank's reporting rules classify renegotiated loans as new business, while an automatic reset under existing terms is generally recorded within outstanding business. New lending therefore does not mean only first-time borrowers.

The corporate benchmark is not a large-business rate

In August 2026, the average on new lending to all PNFCs was 5.57%, compared with 6.63% for SMEs. The difference was 1.06 percentage points. In December 2025 it had been 0.50 points, so the gap widened by 0.56 points.

The broader corporate rate fell by 0.07 points between those months while the SME rate rose by 0.49 points. This is a comparison of the two published series, with their stated institutional coverage. It cannot isolate a premium paid by small companies over large companies: the broader series contains SMEs as well.

We have not labelled it a large-business-only rate or calculated one by subtracting the two percentages. To do that properly would require the corresponding lending weights and compatible populations. Subtracting rates without those weights would produce a misleading result.

What the change means on £50,000

For a simple sensitivity example, assume £50,000 remains outstanding for one year and each selected rate stays unchanged for that year. Interest is £50,000 multiplied by the annual rate divided by 100.

Example assumptions: Constant principal, one year, no repayments, fees, compounding or tax. This is a rate sensitivity calculation using reported averages as inputs. It is not a loan quote, an amortising repayment schedule, a forecast or an APR calculation.

Against the May 2024 input, August's rate reduces this illustrative annual interest bill by £595. Against December 2025, it increases the bill by £245. Against March 2026, the increase is £260.

On the same assumptions, every 0.10 percentage-point change is worth £50 a year on £50,000. On a repayment loan, interest depends on the declining balance and payment timing, so you cannot simply apply this constant-balance saving to the whole original loan amount every year.

Use the business loan repayment calculator with the amount, term, rate and fees in your own offer. For a worked comparison of fee treatment and repayment costs, see what a £50,000 business loan costs.

How we made the comparison

We downloaded five monthly Bank of England series covering January 2024 to August 2026: CFMZ6LD for all new SME loans, CFMZ6LN for outstanding SME loans, CFMZJ3L for new floating-rate SME loans, CFMZJ3U for new fixed-rate SME loans and CFMBJ82 for all new PNFC loans. There were 160 published rate observations and no missing values in the selected period.

We retained the published annualised rates and subtracted the starting rate from the ending rate to calculate percentage-point changes. Multiplying a percentage-point change by 100 gives basis points. We did not average the fixed and floating categories ourselves or construct an unreported large-business rate.

The SME definition here is annual debit turnover on the business account of up to £25 million. That bank-account measure is different from an employee-count definition. The British Business Bank's wider report uses fewer than 250 employees as its general small-business definition. We keep the Bank of England's definition for every rate calculation.

The British Business Bank's 2026 report reports a fall from 6.31% in the third quarter of 2025 to 6.19% in the fourth. The OECD's UK chapter, published in September 2026, discusses the 2024 rise and subsequent decline, with a 6.61% reading for the second quarter of 2025. Those describe earlier data periods, not September 2026 borrowing rates.

As a cross-check, arithmetic averages of the relevant monthly SME rates reproduce those quarterly figures after rounding. That check does not create a pooled quarterly rate weighted by every loan advanced across the quarter.

The Bank's rates are weighted by lending amounts. A larger loan has more influence than a smaller one; these are not averages giving each business equal weight. The reporting sample covers banks and other monetary financial institutions rather than every alternative lender. The selected SME series concerns non-financial companies, so it should not be treated as a rate for every sole trader or every form of business finance.

Arrangement and other product fees are reported separately from loan interest under the Bank's rules. These interest-rate series cannot show the complete cost of an individual offer. Overdrafts and corporate credit cards also have separate reporting treatment, and new-business reporting excludes loans of less than one month. Data can be revised.

Download the 32-month results table and the definitions and calculation notes. The download identifies the series, units, data period and source. It contains published interest rates and our calculated gap, with Bank of England attribution under the Open Government Licence.

Frequently asked questions

Should I expect a 6.63% rate on my next business loan?

The August 2026 figure is an average of recorded new SME bank lending. It is not an advertised minimum or an offer. Compare the written rate, fees, security, repayment schedule and early-repayment conditions for your business. Our comparison of UK lender requirements explains the published eligibility criteria separately from this interest-rate study.

Can these figures tell me whether to refinance now?

They give you a dated benchmark and a way to test the cost of a rate change. A refinancing decision needs the replacement offer, any fee for leaving the current loan and the remaining repayment schedule. The averages do not show those contract terms or predict future rates.