Basis point

Definition

A basis point (bp or "bip") equals 0.01%. One hundred basis points make one percentage point. It is how rate moves and lending margins are quoted precisely.

In plain terms

If the Bank of England raises the base rate by 25 basis points, that is a 0.25% rise. Saying "basis points" removes the ambiguity of "a quarter point".

Why it matters for your company

Loan margins are set in basis points over base rate (e.g. "base + 450 bps"). On a large facility, 50 bps is real money — worth negotiating.

In practice

Picture a UK limited company holding a facility priced as a margin over base rate. When the lender reviews pricing at renewal, any adjustment is quoted and negotiated in basis points rather than in loose percentage language, because a director comparing offers needs to know precisely whether a change is trivial or material. A shift described only as "a small increase" is genuinely ambiguous; a shift described in basis points is not.

This precision matters most at renewal or refinancing, when a company is comparing its existing margin against a fresh quote. Basis points let a director line up two offers side by side and see the exact gap, rather than relying on rounded percentage figures that can mask a meaningful difference in the true cost of the facility over its life.

How lenders read it

Lenders use basis points internally as the working unit for risk-based pricing, adjusting a company's margin up or down in small, deliberate increments as its risk profile, security position, or trading history changes. A move of a handful of basis points is rarely about a single event; it usually reflects the accumulated view a lender has formed of the business over the relationship.

Because the unit is so granular, it also lets lenders differentiate between similar-looking applicants without resorting to broad, blunt bands. Two companies that might otherwise be quoted "the same rate" in casual conversation can, in basis-point terms, sit at meaningfully different points on a lender's pricing curve — reflecting differences in trading history, security, or facility structure that a whole-percentage-point view would flatten out.