The Rising Cost of Commercial Borrowing: Why the “Wait and See” Strategy Could Be Costly

With swap rates climbing and global inflation risks resurfacing, the cost of commercial borrowing is on the move. Discover why acting now on your commercial mortgage or business loan could save your firm thousands.

March 19th, 2026

For much of late 2025, the narrative for UK businesses was one of cautious optimism – it wasn’t quite letting the good times roll, but there was some optimism that 2026 may be a period of calm and a return to regularity.

Inflation appeared to be tamed, and the Bank of England had begun a consistent cycle of base rate reductions, bringing the rate down to 3.75% by the end of the year.

However, as we move through the early part of 2026, that landscape has shifted. I take that back, the landscape has not shifted, it is totally moved.

A combination of geopolitical volatility and stubborn secondary inflationary pressures, particularly around energy and oil prices, has sent shockwaves through the markets.

For businesses looking at commercial mortgages or any business lending, the era of “cheap debt” may be closing faster than anyone anticipated a few weeks back.

Understanding the Swap Rate Surge

Roll the clock back a few weeks and the cost of borrowing wasn’t cheap, at least that was the perception. There was a steady ‘wait and see’ approach from most businesses and property developers/investors.

Part of that comes down to the fact businesses focus on the Bank of England Base Rate. I get it, it is easy to understand and it is how personal mortgages are normally worked. Commercial lenders are different, they primarily price their fixed rate products against Swap Rates (specifically SONIA swaps).

Swap rates are essentially a view on where interest rates will be at some given point in the future. They are highly sensitive to global events. Read that last part again. Global events. Conflict in the Middle East has driven up oil and gas prices. Fear that this may continue into the medium term are reigniting fears inflation will stay above the 2% target for longer, or worse still, keep on heading upward.

When energy costs spike, markets “price in” higher risk.

This was seen in early March, we saw five-year swap rates jump significantly – reversing months of steady downward trends.

For a business seeking a £1 million commercial mortgage, even a 0.25% increase in the swap rate can translate to thousands of pounds in additional interest, if you then extrapolate that over any fixed rate term and the increase in cost of finance becomes notable.

This could be the best reason for businesses to revisit the Growth Guarantee Scheme, rarely has a Government scheme been around so timely.

The Impact of Inflation on Commercial Lending

Inflation acts as a less of a double-edged for commercial borrowers, rather a sword that cuts twice:

Direct Costs: Higher inflation will likely force the Bank of England to keep the Base Rate “higher for longer”, meaning an expection of continual cust may have to be shelved.

Affordability Hurdles: Lenders use Interest Cover Ratios (ICR) and Debt Service Cover Ratios (DSCR) to stress-test affordability on lending applications. As borrowing costs rise, the level of mortgage that property’s rental can support decreases. This creates a “funding gap” where borrowers may need to provide a larger deposit to secure the same asset.

The affordability is less an issue on day one, it is more an issue when mortgage or fixed rate deals expire and the rental income (or business accounts) no longer cover what is already owed.

At Lime Finance Solutions, we are seeing a shift in how savvy operators are approaching their debt. David Farmer, Founder of Lime Finance Solutions, notes:

“Currently the biggest risk isn’t necessarily a high rate but the cost of indecision. We are seeing a volatility in swap rates that we haven’t seen in for a few years. If you have borrowing expiring in the next 12 months, waiting for the bottom of the market is a risky game to play. Securing a rate now provides a ceiling on your cost of borrowing, protecting you from further global shocks.”

Why Acting Now is a Strategic Move

In a volatile market, “defensive debt management” is key (I hate buzzwords but this one sounds about right for where we are).

Many commercial lenders allow you to secure a rate up to six months in advance. If not then you can refinance to another lender, secure the rate on offer now and complete later.

By acting sooner rather than later, you gain:

Certainty: The certainty of protection against further rises in funding costs.

Flexibility: The earlier you act the more options you will always have. The later you leave things and those options narrow.

Operational Focus: Sorting your finance early allows you to focus on your core business. Nothing distracts more than a panic over cash flow or that sleepless night worrying about borrowing.

The Break Clause Emergency

Almost all term loans over 10 years have a ‘break’ or ‘renegotiation’ clause. It means that the lender can test affordability, revalue an asset or seek to renegotiate. It means that whilst a business or borrower can think they have a long term mortgage, that isn’t necessarily the case.

Lenders tend to let you know about these clauses when they need to but stay shtum at other times.

This can be where that previously mentioned sword comes back to haunt. Costs impact on profits or EBITDA reducing what a business has to afford a loan, then the loan costs are higher simultaneously.

Avoiding this is key, and that means doing something early.

Whilst the long-term outlook may still point toward gradual easing, that is long term. The short (and perhaps medium) term volatility in swap rates should be a clear message to businesses: the time to review your commercial borrowing is now.

Frequently Asked Questions: Commercial Borrowing in 2026

1. Why are commercial mortgage rates rising if the Bank of England Base Rate is held at 3.75%?

While the Base Rate is a key indicator, most fixed-rate commercial loans are priced based on Swap Rates. This is a parallel to the cost of borrowing for the commercial lender and reflects where markets expect interest rates to be at a given future point in time. Swap rates are subject to impact from global events, hence why we are seeing movement now.

2. How does the South East location impact my borrowing capacity?

The South East often commands higher property valuations, which in turn means larger loan amounts. When borrowing costs rise due to market volatility, that affordability is squeezed and may lead a lender to offering you a lower Loan-to-Value (LTV) than you originally wanted.

3. Should I wait for the predicted rate cuts later in 2026?

As David Farmer notes, “waiting for the bottom” is a high-risk strategy. While some economists still forecast cuts toward the end of the year, the current volatility in swap rates means that the deal available today might be better than what is available in three months if global tensions escalate. Securing a rate now provides a “ceiling” for your costs.

4. Can I “lock in” a rate before my current deal expires?

Yes. Many commercial lenders allow you to secure an offer up to six months in advance of your current fixed term ending. Where they don’t then you can normally refinance in the last few months of an agreement without penalty.

5. How do I know if my business is still “bankable” at higher rates?

Lenders are currently scrutinising EBITDA and debt-servicing capabilities more than ever. We recommend a “stress-test” which we are happy to work through with you so you are fully aware of your options – more importantly, it gives you time to review of your financials and your borrowing options

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.