Is falling demand for finance creating opportunities for borrowers?

Having remained stubbornly high, interest rates are now falling and with it the cost of debt funding.

It is a good time for businesses to review and restructure debt funding and to once again reconsider bank funding as a future sources of capital. 

Many businesses continue to carry Covid-era funding, each with varying terms. Bounce Bank loans, with a fixed interest rate of 2.5%, continue to look particularly attractive for those businesses that have extended borrowing terms to the maximum 10 years, a right of the borrower under this scheme. 

Meanwhile, most CBILS loans, typically structured over five-year terms, have now been repaid, creating a noticeable gap in lenders’ commercial lending portfolios that they are eager to fill. It has created an environment where the leading lenders are actively seeking new lending opportunities to replace gaps in their lending portfolios. 

The UK lending market has currently an over supply of lenders with capital to lend but a reduced demand for that funding. According to recent data from the British Business Bank and its Small Business Finance Markets report, the demand for bank borrowing has stalled. Just 43% of businesses have current borrowing in 2024, down from 50% in 2023, although businesses that do borrow are borrowing more.  

It is perhaps the continued political uncertainty that surrounds US trade policies and the increased costs facing UK businesses, most notably through increased National Insurance contributions, that is delaying borrowing decisions. 

The result is a highly competitive lending landscape with rates of sub 2% above base rate typically available for businesses with a strong financial position. It represents a significant opportunity for businesses seeking growth funding and those wishing to refinance on more favourable terms.  

Growth Guarantee Scheme

Often overlooked, the government’s Growth Guarantee Scheme, designed specifically to support SMEs in accessing finance remains open to businesses wishing to borrow up to £2 million. With a partial government-backed guarantee for lenders, it makes it easier for businesses that might have otherwise struggled to access debt finance. It remains a valuable source of debt funding for thousands of UK businesses.

A strategic approach to funding is needed

Now is a good time for businesses with existing bank debt or looking for new and additional growth funding to consider once again bank funding. But as with all funding, a well-structured and strategic approach is needed.  

Lenders will want to see a detailed business plan with forecasts over the borrowing period. It is something the dedicated funding team at Kreston Reeves can help prepare. The team also enjoys strong relationships with many funders, so where one proves unresponsive or uncompetitive, we can explore other funding options. 

For further information contact our funding team here.