Small business reaction to historic interest rate cut

As widely predicted, the Bank of England cut interest rates again today, taking the rate in January 2009 to 1.5%, a figure not seen for over 300 years.  Historic times indeed.

Lowering the cost of borrowing is clearly good for small businesses, but for one major flaw pointed out by the Federation of Small Businesses (FSB) and others today.

Many SMEs are struggling to get their hands on credit, so the cost of borrowing, however cheap, is not necessarily as beneficial as one would hope.

As FSB chairman John Wright said today:

With rates now at their lowest ever level, small businesses are now more concerned about access to money. The FSB would like a cast-iron guarantee that the banks will not only pass on the interest rate cuts, but pass on the money to the small businesses that need it.

Access to credit for viable businesses is clearly going to continue to be a major political and economic theme throughout 2009.

As the BBC’s economics editor points out the Bank of England sees no green shoots of recovery, but has very little room for manoeuvre left within its current powers.

It looks like it will be down to politicians to bludgeon banks into lending again, although that may actually mean underwriting loans from the public purse.

[Photo credit: den99 licenced from Flickr]