Interest rates on business loans are often described relative to a benchmark. Understanding what these benchmarks are and how they affect your costs helps you interpret loan offers and plan your finances.
The Bank of England base rate
The Bank of England's Monetary Policy Committee (MPC) sets the base rate (also called Bank Rate) to control inflation and support the UK economy. As of 2026, UK businesses have lived through a period of significant rate movement — from historic lows near 0% through rapid rises above 5%, and then gradual reductions.
The base rate directly affects the cost of money for banks and lenders. When the base rate rises, borrowing costs throughout the economy tend to rise. When it falls, costs tend to ease.
SONIA — the benchmark for sterling
SONIA (Sterling Overnight Index Average) replaced LIBOR as the primary benchmark for sterling interest rates after LIBOR's discontinuation in 2023. SONIA reflects the actual rate at which banks lend to each other overnight. Many variable-rate business loans — particularly from banks — are now priced as SONIA plus a margin (for example, "SONIA + 3%"). As SONIA moves, so does the interest on these loans.
Fixed vs variable rates
Fixed rate loans carry a set interest rate for the term of the agreement. You know exactly what you will pay each period, regardless of what happens to base rate or SONIA. Credicorp's term loans and Slice facilities use fixed pricing — the total cost of credit is agreed at the outset and does not change.
Variable rate loans (common in bank overdrafts and some revolving credit facilities) move with the benchmark. If the base rate rises, your interest payments rise. If it falls, they fall. This introduces cashflow uncertainty that fixed-rate facilities avoid.
How pricing is set at specialist lenders
Specialist business lenders like Credicorp typically set pricing using internal risk models rather than a floating benchmark. Your rate reflects your company's specific risk profile — its revenue, payment history, and financial position — rather than tracking SONIA daily. This means your rate is fixed at origination and is independent of future Bank of England decisions.
APR vs total cost of credit
When comparing loan options, the interest rate alone is not always the best comparison metric. APR (Annual Percentage Rate) standardises the annual cost including fees, but it can be misleading for short-term facilities or flat-fee products like Slice. The total cost of credit — the exact amount you will pay above the amount you borrow — is often a clearer number for planning. See total cost of credit explained.
See also: Total cost of credit explained, APR vs total cost: what to trust, Daily interest vs APR.