What rate for a business loan this year? How do I get one?

What will business loan rates be in 2023?

In 2023, the average business loan rate is 4.28%. They range from 4% to 8%, depending on the nature of the project.

These rates, observed over the second half of the year (Q3 2023), show a clear upward trend.

According to Banque de France these loans had average durations ranging from 2.4 years for short-term cash needs to 16 years for a home loan .

How hard will it be to get a business loan in 2023?

According to the French Banking Federation Most of the latest business loans requested by SMEs were approved: 97% of investment loans and 83% of cash loans.

But these credits can be costly and restrictive: more flexible alternatives exist.

What are the rate references for a business loan?

Rates for a business loan are based on several benchmarks :

• Eonia / Esther : average of rates on the Euro interbank market. Updated daily, it is calculated by the European Central Bank. Eonia was replaced by Ester in 2022.

• Euribor : average rate at which the main European banks lend money to each other in the Eurozone.

• Bank prime rate : minimum interest rate that a bank can grant for a business loan. It is adjusted according to various criteria, such as the customer, the duration of the loan, the activity, etc.

• Legal rate : interest rate set by the legislator. It is used to calculate the late payment interest due by a defaulting debtor after formal notice.

• Usury rate : maximum rate at which a loan can be granted. It is calculated quarterly by the Banque de France.

To illustrate the evolution of these indices, let's take the example of the Euribor . Its fluctuation directly influences interest rates on business loans.

Euribor chart
source : euribor-rates.eu

How will business loan rates evolve?

Rates to remain stable in 2024 then start decline slowly from 2025 . This forecast is supported by the European Central Bank which provides for a falling inflation from 5.6% in 2023 to 2.1% in 2025 .

What's more, the economic growth in the euro zone should gradually increase, reaching 1.5% in 2025 .

Factors influencing business loan rates

Business loan rates are not set at random. They are the result of a combination of internal and external factors that influence banks' decisions.

Here are the main factors that influence your interest rate:

• Borrower profile

A company's credibility and financial strength influence the rate offered. A company with a good credit history (no repayment incidents) and a solid financial situation (competitive sales and profits) may obtain a more favorable rate. The lower the risk for the bank, the lower the rate.

• Economic conditions

Rates are affected by factors such as inflation and monetary policy. During a recession, rates could rise due to increased economic risks. But above all, in times of inflation, central banks raise key rates and therefore your bank rate.

• Loan term and amount

Longer or larger loans may have different rates. A 10-year loan could have a higher rate than a 5-year loan because of the risk over a longer period.

It is important to note that loan rates can be classified into two main categories:

• Fixed rate

The interest rate remains constant throughout the term of the loan . This offers predictability of repayments, but can sometimes be slightly higher initially.

• Variable rate

Interest rates may fluctuate according to market conditions . This can offer initially lower rates, but with the risk of maturities increasing if market rates rise.

Evaluate your eligibility and prepare your application

Obtaining a business loan depends largely on the quality of the application you present to the bank. A well-structured business case is essential for obtaining a business loan. It must enable the bank advisor to understand and believe in your project.

5 essential criteria for your project :

• The customer request must be real and quantified (you must be able to prove sales).

• Your project must be technically feasible and on schedule

• The project must be viable and profitable

• The team must be motivated and competent

• The business plan must be solid, including a forecast, an action plan, and the means to achieve it.

Financial structure

The loan amount requested must be realistic and well justified. Financial ratios, such as WCR and cash flow, will be studied. It is crucial to don't underestimate cash requirements.

Business Plan

This document groups together all the elements relating to the project. It must cover the target market, the project team and the financing. A market study, a description of the product or service, and a financial forecast (for a minimum of 3 years, or for the duration of the loan) are essential.

What can I finance with a business loan?

A business loan offers great flexibility to meet a company's needs:

• Purchase of material goods

Machinery, vehicles or equipment necessary for the operation of the business.

• Acquisition of intangible assets

The purchase of licenses, patents or brands that add value to the company.

• Working capital requirement

Cover current expenses such as salaries, rents or purchases of raw materials.

• Buying or leasing business premises

Financing a move or the opening of a new outlet.

• Taking over a company

Provide the funds needed to buy an existing business.

• Strategic investments

International expansion, new product launches or other strategic initiatives.

Mistakes to avoid when preparing your file

During the preparing a professional loan file However, certain mistakes can jeopardize your chances of obtaining the financing you want. Here are the most common ones:

• Insufficient financial information

Failure to provide sufficient financial details may be viewed with suspicion by the banks.

• Unconvincing or incomplete business plan

A vague or incomplete business plan doesn't reassure you about the viability of your project.

• No personal guarantees or sureties

Lenders are looking for proof that the loan will be repaid. Lack of collateral can be an obstacle. These include insurance policies, property mortgages and guarantees on the manager's assets.

• Not anticipating the lender's questions

It's crucial to be prepared to answer all the lender's potential questions to show that you've thought your application through.

• Disorganized presentation

A poorly organized or disorganized file can give the wrong first impression.

How can I negotiate my business loan rate?

Getting the best rate on a business loan often requires skilful negotiation. Here are a few strategies to help you get a great interest rate:

• Take advantage of the competition: Comparing offers from several banks can give you an edge in negotiations. If a bank knows that you have other options, it will be more inclined to offer you a better rate.

• The impact of your relationship with your banker: A solid, trusting relationship with your banker can be a major asset. If you have a positive track record with your bank, it may be able to offer you more favorable terms.

• Use online simulators : Before you see your banker, try out simulators like " MeilleurTauxPro ". They estimate current rates and strengthen your negotiating position.

• Using a broker He negotiates the rate, in exchange for a commission.

Should I use a broker for my business loan?

Using a broker can be an excellent option for some entrepreneurs. Here's why:

• Time saving

The broker knows the market and can quickly identify the best offers for your situation.

• Expertise

An experienced broker can advise you on the best financing strategy and help you avoid common pitfalls.

• Negotiating power

Brokers often have established relationships with several lenders, which can give them an advantage in negotiations.

• Speed

If you approach the banks yourself, it can take a long time. They are often shorter with a broker.

What are the alternatives to traditional business loans?

Here are some alternatives to traditional bank loans for businesses:

Hero

Hero is positioned as an avant-garde financing solution for professionals. For your cash flow needs you can finance your supplier invoices and accelerate your customer collections:

• Hero Extra Cash prepay your supplier invoices at 30 or 60 days.

• Hero Cash speeds up and secures your customer collections.

• Hero Checkout makes it easier for your B2C and B2B customers to pay on your website (deferred payment or payment in instalments).

Hero is flexible You can choose which invoices and which customers to finance (unlike many banks, which require you to finance all your invoices).

All products are non-binding.

There is no minimum amount financed.

Conclusion: business loan rates

Pick up the phone business loan at a good rate can seem complex. But with the right preparation and knowledge of the various options available, it's possible to find the right financial solution for your needs.

Among SMEs, most credit requests concern short-term financing needs.

But most banks prefer larger companies.

Hero offers an alternative for those looking for financing solutions that differ from traditional bank loans. Our solution enables companies of all sizes to finance their cash flow.

Frequently asked questions

Who can take out a business loan?

Any company, whether a start-up, SME or large corporation, can take out a business loan, depending on its creditworthiness and its project.

How do you convince your banker for a business loan?

Present a solid file, a detailed business plan, demonstrate the viability of your project and make sure you have good financial management.

How can I get a loan without going through a bank?

We can explore crowdfunding, private investors, private debt, or platforms like Hero to obtain financing outside the traditional banking system.

How long is a business loan?

The average term of a business loan ranges from 2.4 years for short-term cash needs to 16 years for a home loan (source: ECB).

Other articles on the same subject:

• How to finance and optimize working capital requirements?

• Negative WCR: what is it and how can it be managed?

• Positive WCR: what is it and how can it be optimized?