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this might be a very basic and stupid question, but I've just recently started considering bank loans for my business (Covid...) and I have no experience with this world whatsoever.

I've noticed that some banks offer non-Covid-related loans at interest rates as low as 1.2%, whereas others won't go below 2.5%. The loans I'm checking are not special loans, rather basic business loans, so I can't understand why the difference would be so wide.

Does anyone know where the trend comes from? Is it like larger banks usually have lower interests, and smaller bank have higher ones? Or is that usually related to the region? (I'm checking banks in 2 different prefectures in Japan) Or anything else I can't think of?

Thank you in advance

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    different businesses?
    – Stack Exchange Supports Israel
    Commented Sep 2, 2021 at 9:22
  • Probably higher interest rate banks provide loans to riskier customers who can't get loans from lower interest rate banks.
    – Naktibalda
    Commented Sep 2, 2021 at 10:14
  • The thing is I'm researching information online, so it doesn't depend on who applies. It's their own standard rate. To be fair, some do say " between 2.5% and 14%", so in that case yes, I would guess it depends on who is applying.
    – Randomizar
    Commented Sep 2, 2021 at 12:04
  • I took a mortgage from the smallest bank in the country with 4.4% interest rate because I didn't satisfy requirements for banks with 2.2%-3.0% rate (I was self-employed for 2 years back then)
    – Naktibalda
    Commented Sep 2, 2021 at 12:09
  • This explains it a bit. I would guess that some banks have stricter requirements and larger funds, and the result is a lower interest rate - whereas banks with fewer funds and more relaxed requirements need to get themselves more room to make up for losses. Thanks for your answers
    – Randomizar
    Commented Sep 3, 2021 at 1:16

1 Answer 1

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Loan rates are made up of several components, three of which are:

  • funding cost (cost to the bank to get the money to lend to you);
  • profit margin (how much the bank wants to earn from the lending); and
  • risk (cost to the bank if you default on repayments).

Each bank - and possibly even each business unit - can have a different funding cost. The source of funds might be long-dated term deposits, inter-bank borrowings, bank bonds, etc.

The profit margin they charge may depend on your relationship with the bank, as well as the demands of their stakeholders and what they think the market will accept, and so on.

The risk you represent is also not one-size-fits-all because different banks might not share the same actuarial team.

You can always shop around and negotiate, but with even just the 3 factors outlined above, there is no intrinsic reason that different lenders should coordinate their lending rates.

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    What a great answer. Thank you!
    – Randomizar
    Commented Sep 6, 2021 at 1:18

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