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Interest rates for big and small corporate loans

February 7, 2018

The difference in interest rates between larger and smaller corporate loans has generally decreased in recent years. In the fourth quarter of 2013, the average interest rate on new floating-rate corporate loans was 2.55 percent for loans in excess of 1 million and 3.78 percent for loans under 0.25 million. The difference in interest rate was thus 1.23 percentage points.

As an argument that interest rates are lower on larger corporate loans, less often it is argued that the risks vary between small, medium and large companies. Among other things, the Financial Supervisory Authority repeatedly notes in its reports the banks' interest rates and lending to "generally be loans to smaller companies associated with a greater risk for the bank" and that "it is therefore reasonable to expect that there is a certain difference in borrowing costs for large and small business".

I completely share the view that different risks are a relevant explanation for different interest rates. The banks finance corporate loans with a share of equity and a share of borrowed capital. When the risk for a borrower is assessed high, a larger share of equity is required than when the risk of a borrower is judged to be low and because the banks 'shareholders have higher return targets than the banks' lenders demand in interest, this creates a motivated spread of interest rates. Companies with assessed low risk should therefore pay a lower interest rate than companies with a high risk.


Credit risk assessment

Credit risk assesment

January 2, 2018

In December 2013, the European Banking Authority, EBA, published information that, for the first time, allows for a survey of the risks the banks have actually assessed in their corporate customers and in the report. The Business Development Quarter quarter 4 2013 presented in February shows the banks own risk assessments of small, medium and big companies.

As shown in the diagram, the risk weights for small, medium and large companies are largely identical, and references to the risk justifying higher interest rates for small and medium-sized enterprises are therefore, in my view, incorrect.

At the same time, it should be emphasized that the risk weights are used by banks to calculate the amount of equity required to be resistant to unexpected losses. Banks also compensate for expected losses in the form of loan losses and the calculations leading to risk weights include easing for small businesses. The easing means that the risk weight for small businesses can be the same as for medium and large companies, despite the bank's assessment that the risk of insolvency is greater. Therefore, it can be argued that interest rates for small businesses should be higher.

However, that argument is neutralized by the new Basel 3 rules that apply from the turn of the year. The new rules mean, among other things, that the risk weights for small businesses are reduced by a further less than 24 percent, and the motivated effect on the interest rates of this reduction is greater than the premium motivated to increase the risk of credit losses.

I therefore mean that the differences in interest rates for small, medium and large companies can not be explained by the varying risks. Instead, the differences are, among other things, due to the fact that small and medium-sized companies often lack both sources of funding other than loans and a reference framework for what are reasonable interest rates.

As I highlighted in previous chronicles, as a CFO, you can demonstrate the importance of financial skills by retaking the question of the bank's interest rate terms. Do not discuss interest rate terms based on what interest rates are today but invest an hour in understanding what the interest rates should be and shift the discussion with the bank from dealing with fuzzy regulatory changes to exactly your company's unique situation. What is the risk and a motivated interest for you?


Statistics about business loans withoujt security

Statistics about business loans without security

November 17, 2017

Borrowings for non-financial corporations have varied over time. Depending on how the credit rating from the banks has looked, companies have had different ways of getting loans. Loan development has historically followed the business cycle, but with some lag and issues on the way.

The statistics also show that a large part of corporate loans are taken without collateral, that the loans are taken with long maturity but that the interest rate maturity of the loans is short. Businesses can also finance themselves other than bank loans, for example by issuing securities or taking corporate loans.

In the National Bank's financial market statistics produced by Statistics Norway, banks and other monetary financial institutions (MFIs) report 1 lending to non-financial corporations (hereinafter: companies).

Lending, measured as annual growth rate, has been volatile since 2006. In December 2007, the rate of growth was highest, and measured at 17.6 percent. It then showed a downward trend over two years as a result of the financial crisis.

The growth rate fell to February 2010 when it amounted to -4.7 percent. Since then, the growth rate has recovered, but has remained fairly stable over the past year. In total, corporate borrowing amounted to 1 885 billion at the end of August 2013.


Unsecured loans are common

Unsecured loans are common

October 24, 2017

Lending to companies can be divided into the type of collateral that the loan has. A summary shows that the majority of the loans have collateral in multi-family houses, while unsecured loans, so-called blank loans, are the second most common loan type. Furthermore, it is clear that loan credit has varied considerably more than other loan types. One of these players are Qred. They offer unsecured business loans to small and medium large businesses. Another service are banks or governmental instances who can give you loans to support your business. It's common to use governmental funding or financing as a top loan for your other financing.

From January 2006 through February 2009 loan credits accounted for 48 percent of the total increase in corporate borrowing. From February 2009 until September 2010, there were blank loans that accounted for virtually the entire reduction in lending to companies.

One reason that it looked in this way could be that banks during the worst period of the financial crisis had to demand higher-level loans in their portfolio.

Total lending also decreased during this period. This could be due to different things; either that companies did not have to take as much loan at this time, sought funding elsewhere or had difficulty obtaining funding.

One likely scenario is that the larger companies sought funding elsewhere while smaller companies had financial difficulties. The fact that some companies had financial difficulties is something that is confirmed by the Riksbank's corporate interviews.


Business Lending is affected by the business cycle

Business Lending is affected by the business cycle

September 8, 2017

What the statistics show is that corporate borrowing is highly sensitive to the prevailing economic climate, and that companies may need financing opportunities other than borrowing.

From 2006 to the present day, statistics show that developments in the growth rate of corporate lending follow the business cycle with some lag. The Economic Institute's barometer indicator, which is a compilation of corporate and household views of the business cycle, began to decline in mid-2007, while the growth rate on lending showed its first tendencies to decline in early 2008.

A similar trend is seen in a comparison between investment and growth rate, where investments respond to changes in the business cycle before the growth rate does. At the same time as the barometer indicator fell, mid-2007, investments also declined while growth rates continued to increase.

This could point out that investments are what the companies decrease in the first place in conjunction with economic downturns, leading to lower demand for credit and eventually resulting in a reduced rate of growth. Correspondingly, investments are a bit like a drag of business before economic upswing.


Corporate loans have a long maturity

Corporate loans often have a long maturity but short term of interest

August 26, 2017

One of the reasons that the growth rate reacts later than the business cycle is the corporate loan structure.

The company's loan structure can be seen from two different approaches. Secondly, corporate loans can be described based on their maturity, which refers to the length of the loan agreement. Firstly, it can be described based on the loan's fixed-interest period, which refers to the time the company has bound the interest on the loan taken before they have to negotiate a new interest rate.

Statistics in the balance sheet, which is based on a sample survey among non-financial corporations, shows that companies generally have higher loan amounts with longer maturities than with shorter maturities.

Longer maturities are defined here as maturity over one year while shorter maturities are less than one year. The fact that companies tend to have longer loans is an explanation of why the growth rate reacts later than the barometer indicator. This is because companies' expectations of the business cycle may change before the maturity of an agreed loan has expired.

From 2006 onwards, the proportion of long loans has varied between 80 and 90 percent of total borrowing excluding group loans.

Another possibility for financing for companies is to raise group loans from abroad. During the entire period under review until the third quarter of 2012, group loans have been just over 40 percent of total borrowing. Since the end of 2012, however, group loans have declined, which can partly be explained by a new regulation on corporate taxation introduced at the turn of the year 2012/2013.


Companies' loan structure

August 11, 2017

One of the reasons that the growth rate reacts later than the business cycle is the corporate loan structure.

Viewed on the fixed-interest period, it appears that the majority of the loans have a short fixed-interest period. The proportion of loans with fixed-interest periods up to 1 year has increased steadily since 2006, except for the last two years as the trend has been that more corporate loans have been taken with a fixed-interest period of between 1 and 5 years. At the end of August 2013, the proportion of loans with the fixed-interest period between 1 and 5 years was about 21 percent, compared to October 2010 when the share was slightly over 15 percent.


Companies primarily issue bonds

July 18, 2017

As a complement to bank borrowing, many companies issue securities to access capital. The buyer of the issued security then lends money to the company with the promise that it will be repaid with interest at a certain time. The companies can issue either certificates, which are securities with a maturity of up to one year, or bonds that are securities with a maturity of one year. The market for corporate securities has generally increased since 2006. Want to know more about corporate bound? Read more

Bonds represent the largest share of corporate issued securities and account for about 80-90 percent of all issued securities from 2006 onward. The distribution between corporate issued bonds and certificates has not varied significantly during this period. In the Securities Database launched in March 2013, it can be seen that much of the total issuance is in foreign currency, almost 60 percent. The companies appear to be dependent on foreign funding and, consequently, are also affected to a larger extent by the economic situation in different countries outside for example the nordic countries. It might be a lot different in the states, for example. Therefore, make sure you read about corporate bonds at The US Securities and Exchange Commission.


Long and healthy relationships

June 24, 2017

We have a credit market permit from FSA and treasury and always follow their terms and conditions. And unlike many competitors, we think long-term. We want a long and healthy relationship with you as a customer. Therefore, our loans should not act as an artificial respiration for companies in crisis - they will help you develop.

We want to be your partner and can customize the terms according to your circumstances. We accept most types of security, such as corporate subscriptions and mortgages in real estate. If you want to lower the price further, we will accept the deposit.


We are not a bank

May 27, 2017

Here, we are experts in business finance for small and medium-sized companies. But even though we do the same things as the bank, we are no directors, we are entrepreneurs.

We believe in innovation, not some kind of misplaced tradition. We act instead of discussing. We see opportunities where others only see obstacles. We see man when others only see numbers. With us you get a partner, someone to develop with. Here and now. Because we have removed the circumscribed, difficult and difficult. Where is it simple, fast and personal. And it has made us all but a bank.

But even though we are faster, easier and more flexible than the old banks, we will never be able to worry about it. We have a credit market permit from the inspection.

We think long-term. We know that over time, it's a better business to help businesses grow and entrepreneurs reach their full potential. And because we want a long and healthy relationship with you, we play with open cards.

We believe in transparency and mutual respect. On partnership and cooperation. Therefore, we will never force you to get out of silly agreements. Our agreements are simple and they have no bindings.

You cooperate with us because you want to - not because you have to

How do I apply for a quick business loan?

Well, you can always contact us directly or apply here!


Articles about small business financing

It is always good and healthy to read about the field you are in, are looking to invest or buy from. Read Business News Daily's article about The Small Business Financing Trends of 2018 here.


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