When business acquisition loan rates rise: fixed, variable and the lender's test
Business acquisition loan rates can rise with Bank Rate. Check if your rate is fixed, run the lender's test again and know how to rescue a tight deal.
Reading time5 min read
CategoryBusiness guides
Written byThe bizbritain team
A rise in Bank Rate changes business acquisition loan rates for some buyers straight away, and for others not at all. If your loan has a fixed rate, it stays the same for the fixed period. If it tracks Bank Rate, your repayments go up with it. Either way, the lender will want to see that the deal still works at the new rate.
Bank Rate is 3.75%. The Bank of England's next decision is due on 5 November 2026. According to a Reuters poll, most economists expect a rise to 4%. That would be the first increase since August 2023.
Section 01
Is your quoted rate fixed or variable?
Start with the loan offer or the lender's indicative terms. They should say which type of rate you have.
A variable rate usually tracks Bank Rate plus a set margin. When Bank Rate rises, your rate rises by the same amount. The change applies from a set date, so check when.
A fixed rate stays the same for an agreed period. Check how long that period is. Some loans are fixed for a few years and then move to a variable rate.
Also check how long the offer lasts. If completion slips past that date, the lender may price the loan again. On a deal that is running late, that can matter more than the rate itself.
Section 02
How do business acquisition loan rates change the lender's test?
Lenders check that the business can pay the loan from its profits. They compare the cash the business makes with the yearly repayments. They want the profit to cover the repayments with room to spare.
Some lenders also check whether the deal would still work if rates rose further. A rise in Bank Rate eats into that room. A deal that only just passed before may not pass now.
Here is an example. The figures are illustrative, not a quote. Take a loan of £400,000 repaid over seven years.
£6,234a month at 8% a year
£6,284a month at 8.25%, about £600 extra a year
£6,436a month at 9%, about £2,400 extra a year
£4,906a month at 8.25% if the term is ten years
For context, according to the Bank of England, the average rate on new bank loans to smaller firms was 6.55% in September. Acquisition loans are priced deal by deal, so yours may differ.
A quarter point on its own rarely breaks a deal. It matters when the numbers were already tight. It also matters if more rises follow, and according to Reuters, financial markets expect further rises next year.
So run the numbers again at the new rate, and again at one point higher. If profit still covers the repayments comfortably, the rise adds cost but should not stop the deal.
Section 03
Five ways to rescue a deal that no longer fits
If the numbers are tight at the new rate, the deal is not necessarily over. These are the usual options, and they can be combined.
A longer term
Spreading the loan over more years lowers each repayment. You pay more interest in total, and lenders limit how long they will lend for.
More money left in by the seller
The seller lends you part of the price and you repay them over time. You then borrow less from the lender.
Part of the price paid later
Some of the price can depend on how the business performs after you buy it. This is often called an earn-out. It shares the risk with the seller.
A lower price
If the business cannot carry the loan at the new rate, the price may be too high. Show the seller the numbers. A seller who wants the sale to complete may accept a small cut rather than start again.
A different lender or structure
Lenders test affordability in different ways. A deal one lender turns down may suit another. Putting more of your own money in also means borrowing less.
If you want to ask the seller to lend part of the price, our guide to vendor finance explains how to raise it.
Section 04
What to do before you complete
Ask the lender, in writing, whether your rate is fixed or variable. Ask when the offer expires. Ask what rate they used to test affordability.
Then talk to the seller early if the numbers have moved. A late surprise worries a seller far more than an early conversation. For the other costs that come with the loan, see how much acquisition finance costs.
If the deal no longer fits your current lender, a broker can test it with a wider range of lenders. We help buyers find business acquisition finance that fits the deal. On advisory deals, bizbritain takes no commission from lenders, and you pay us nothing unless a lender on our panel issues an Agreement in Principle.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
Got a question the guide didn’t answer? Talk to an advisor.
We’ve helped buyers fund deals from £25k to £10m across 100+ lenders. If you’ve read the guide and you’ve got a business in your sights, our advisors are on the phone now.