Should You Borrow Now or Wait?

Entrepreneur

27-06-2025

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UK interest rates remain at a 16-year high. Inflation is finally easing, but the economic outlook is still uncertain. For many small and medium-sized businesses, 2025 has become a year of financial limbo, a moment to pause and ask a critical question: Should we borrow now, or hold off and wait for better conditions?
The answer isn't straightforward. On one hand, business confidence is slowly returning, with growing demand for larger loans to fund expansion, relocation, and recovery. On the other, the cost of borrowing remains steep, and lenders are still cautious about who they approve. With the landscape changing fast, knowing when to make your next move and how to prepare for it could make all the difference.
Interest Rates Are Likely to Fall, But Not Dramatically
After holding steady at 5.25% from August 2023 to May 2025, the Bank of England reduced the base rate to 4.25% on the 8th of May 2025. This marks the first cut in nearly a year, and a one per cent decline over the past 12 months. While this is welcome news for borrowers, experts are warning against expecting dramatic changes. Inflation remains at 3.4%, still above the banks 2% target, and future rate cuts are expected to be gradual. "We think the Bank Rate will be cut to 3.75% by mid-2026," says Ruth Gregory, Deputy Chief UK Economist at Capital Economics. For SMEs considering whether to borrow now or wait, this means potential savings may be marginal, especially when set against time-sensitive opportunities like growth, relocation, or acquisitions.
Demand for Funding Is Starting to Rise Again
Despite high rates, some businesses aren't waiting. Iwoca's Q1 2025 SME Expert Index found that 42% of brokers expect demand for loans over £100,000 to increase this year, particularly among businesses looking to expand or relocate.
At the same time, net lending to SMEs fell by £1.2 billion in Q1 2025, according to the Bank of England, showing that while some SMEs are still hesitant to borrow, others are taking advantage of less competition. If rates begin to fall later this year, as many expect, lenders may receive a flood of applications. Businesses that wait too long could find themselves up against more applicants and tighter lending criteria when they finally decide to act.
Expansion Opportunities Might Not Wait for Cheaper Money
Some of the best growth opportunities appear in periods of uncertainty. Whether it's securing a discounted lease, acquiring a struggling competitor, or investing in undervalued assets, timing is everything, and in many cases, delaying a decision for marginally cheaper borrowing could mean missing out altogether.
"A lot of SMEs wait for the 'perfect' conditions, but by the time they arrive, the opportunity's gone," says Callum Scott, Managing Director at Winchester Corporate Finance. In this context, SMEs with strong growth plans may benefit more from acting early than holding out for small rate drops. Cheaper borrowing can be helpful, but it's no substitute for momentum or market opportunity.
Lenders Are Looking for Financial Discipline, Not Just Ambition
Even as some lenders start to open their books again, they remain cautious. The British Business Bank reports that only 43% of smaller businesses secured external finance in 2024, down from 50% in 2023. Among those referred to alternative lenders through the UK's bank referral scheme, success rates are still very low.
Meanwhile, the Federation of Small Businesses says that 1 in 3 loan applications are rejected due to poor preparation or unclear financials. Lenders want more than a promising growth story; they want to see clean, well-managed accounts and a clear repayment strategy.
If you're not confident about your business's financials, from cash flow to forecasts, this may be a good time to pause, plan, and get lender-ready before you apply. That means tightening up your balance sheet, cutting reliance on overdrafts, and forecasting realistically.
Being 'Funding Ready' Takes Time, Start Now Either Way
Whether you're planning to borrow in the next quarter or not until 2026, the groundwork for a successful funding application needs to start well in advance. Many SMEs only start preparing when they urgently need cash, but by that point, it's often too late to tidy up the numbers or resolve red flags.
Lenders want to see consistency and control. That means reducing reliance on short-term fixes like overdrafts, paying suppliers on time, staying up to date with Companies House filings, and having a clear, realistic plan for how the funding will be used and repaid. These aren't just one-off actions; they reflect how your business is run day to day.
"Being lender-ready isn't about box ticking, it's about financial habits," says Callum Scott. "If your accounts are solid, your forecasts make sense, and your repayment strategy is clear, you're already ahead of most applicants." Even if you choose to hold off on applying for now, laying that financial foundation puts you in a stronger position when the time comes. It can also help you move faster when opportunities arise without scrambling to fix things at the last minute.
For some businesses, the right time to borrow is now. For others, it's later. But in both cases, the smartest move is to start preparing today. Because when the moment comes, the businesses that succeed won't necessarily be the ones that waited; they'll be the ready ones.