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Its the same, = Rate on Risk free assets+ inflation rate+ risk rate+political risk rate
Banks use a scoring test for a person/company when offering a loan. Depending on the risk the bank takes, the interest could be higher or lower. When I say "risk" I mean the sum of the risks of the economy, sector of activity, business type and person/company solvency. After determining the risk, the bank adds a margin and you will obtain an interest rate for a certain loan.
If you need more details, just contact me.
Valentin
Good answer Boss.
When banks quote an interest rate to small business owners on a bank loan, they typically use a benchmark to calculate that interest rate. Most of the time, that benchmark is the prime interest rate. The prime rate is the interest rate a bank charges its most creditworthy customers. It is the base rate on corporate loans posted by at least75% of the nation's30 largest banks.
The prime interest rate is relevant to small businesses because banks use it as the starting interest rate from which to calculate the interest rate to charge on bank loans. The average small business customer can usually add a few percentage points to the current prime rate. In a tight money period, a small business may have to pay even a higher rate.
Another important interest rate is the London Interbank Offered Rate or LIBOR. If your small business is an import/export business or another business with an international presence, then this interest rate may be of importance to you. The LIBOR rate is the interest rate for the London Eurodollar market for loans. It generally moves right along with the prime rate.
