What Factors Affect Corporate Lending Rates?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 October 2019
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There are several different factors that impact the level of interest rates that financial institutions are willing to extend to businesses.. Along with national averages, lenders will also consider the general state of the economy, and the financial condition and rating of the company applying for the loan or line of credit. The availability and willingness to pledge some sort of collateral will also often have some bearing on the corporate lending rates as well as other provisions within the loan contract.

As part of the process for setting basic corporate lending rates, institutions often factor in the average lending rate prevalent in the nation where the lender and applicant are based. To a degree, this serves as a standard or guideline for setting rate structures. While not conclusive, companies with credit ratings within a certain range are likely to receive interest rates at or near that average.


The present state of the economy will also have some impact on the corporate lending rates that institutions are willing to extend to business clients. This is because the weak economy may influence the industry that the client is associated with, either by supporting increased consumption of the goods and services offered by the applicant, or triggering a decrease in demand due to consumers spending more conservatively. In addition to the current economic picture, lenders will also attempt to project market direction over the course of the loan period. Since the company will likely depend on its revenue stream to manage the debt, making sure there is a reasonable chance that the company can actually pay off the loan according to terms is a must.

Another key factor is the credit rating of the applicant. That rating will have some impact on the corporate lending rates the lender is willing to extend. A company with a solid credit rating will normally have little trouble commanding the best rates on the market. At the same time, a company with average credit will likely be offered rates that are a little higher, helping to offset the risk the lender is assuming. At times, applicants can also help minimize that risk and lock in lower corporate lending rates by offering to pledge assets for the duration of the loan. Collateral such as real estate or other holdings that are presumed to hold value over time can make the difference, allowing the applicant and lender to agree upon terms both find mutually advantageous.


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Post 2

@KaBoom - I disagree. I think it's important for bank to be careful who they lend money to. The economy will be even worse when banks start going out of business because no one can pay back their loans.

I don't think a lot of new businesses will result in economic stimulation. People in general are still afraid to spend money! So just opening up a few businesses doesn't meant that the economy will magically get fixed.

Post 1

I've heard from a few people I know that it's really difficult to get a loan from a bank to start a small business these days. You have to have perfect credit and a lot of collateral.

I know they are doing this because of the economy. However, I think it banks would take some chances, we could stimulate the economy with new businesses. However, the way things are, the economy is just stagnating, because people are afraid to do anything.

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