What’s in store for business funding in 2025?

2025 is set to be a pivotal year for the UK’s family and owner-managed businesses. A period of uncertainty in the UK economy appears to be fading, with the UK government, despite an unpopular October Budget, looking to move the national discussion towards growth. 

Yet much uncertainty remains. The impact of the US presidential election, continuing conflicts and instability in several large economies will be felt around the world well beyond the next 12 months. 

For UK businesses, where confidence measured quarterly by the Chartered Institute of Accountants in England and Wales (ICAEW) is returning, access to affordable funding to support growth will be critical. 

Here, the Kreston Reeves dedicated funding team looks to the year ahead and what businesses might expect. 

Interest rates and inflation

Inflation has fallen from its historic highs of 2023 with the Government’s Office for Budget Responsibility expecting it to continue to fall averaging at 2.6% for 2025. Falling inflation will put further pressure on the Bank of England to reduce the interest base rate, with many predicting an eventual fall to 4%. 

The Bank of England’s Monetary Policy Committee (MPC) met on 19 December, holding interest rates at 4.75% following concerns over an expected increase in the headline inflation rate. It was the first test of confidence for the year ahead and was not perhaps the news businesses and the government were hoping for. 

Refinancing returns in 2025

With interest rates expected to fall, we expect businesses to revisit existing financing seeking better terms.  

Many businesses will have numerous loans that will need to be refinanced during the next 12 months, but those looking to reduce the cost of that borrowing may well be disappointed. Borrowing costs remain high and businesses may face an increase in the cost of their borrowing. 

Businesses should shop around to find the best deal, looking to both fixed and variable loans. 

Growth of green and sustainable funding

Green and sustainable funding is expected to grow in 2025 as the ESG agenda and EU rules drive demand, with those businesses caught by the European Sustainability Reporting Standards obliged to report on their sustainability strategies and principles from next year. 

Where these reporting obligations do not apply, businesses looking to prioritise green initiatives and environmental improvement programmes are likely to seek funding that echoes those investments.  

We expect an increasing number of lenders to offer green financing products and the cost of green funding to fall as a greater range of products emerge.  

The rise of alternative financing

Not all businesses will look to traditional bank financing, looking instead to asset-based finance with funds made available against assets owned by the business.  

There are clear benefits for businesses:

• It is often quick and easy to arrange, releasing funds immediately. 

• It is flexible with few restrictions on how cash can be spent. 

• It provides stability in repayment terms allowing clear future financial planning. 

• It allows business owners to retain control as lenders do not require equity in exchange. 

Asset-based financing has long been popular and will continue to provide funding for businesses in 2025.  

Reducing pool of grant funding

With pressures on public finances, we can expect the number of new grants from the public sector to fall. There are, however, existing fund pools available, notable the British Business Bank and funds from local authorities.

It should, however, be noted that many grant funding routes require match-funding by the borrower.

Increased cost of employment

Businesses will face increased costs to business in 2025 thanks in part to the increase in employer National Insurance Contributions and the National Minimum Wage. The British Chambers of Commerce suggests that wage demands will also increase by 3.8% in 2025. 

With the cost of employment increasing, businesses will undoubtedly question recruitment decisions going forward. Higher costs for businesses will be reflected in lenders’ appetite for funding arrangements.  

Take advice

As always, businesses should take independent advice before changing or agreeing to new financing arrangements.  

For more information about how our Funding Team can help you, contact us here.