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Corporate loan – interest and fees

See this information package for everything about interest rates in corporate loans!

Interest consists of a base interest rate and a markup agreed with the bank

In corporate loans, interest consists of a base interest rate and a markup agreed with the bank. The final cost of a corporate loan consists of the interest rate for the principal as well as loan drawdown and management fees. 

External financing in the form of corporate loans may be necessary both when founding a business and later on to finance purchases and investments. Corporate loans can be used to finance the purchase of new work equipment or facilities or to otherwise expand the business. 

Corporate loans are particularly suitable for long-term investments, and the loan term of corporate loans is typically between three (3) to seven (7) years. Detailed terms of the loan are always agreed individually for each company, and the final cost of the loan depends on the company’s financial standing, future prospects and solvency, and the loan term and collateral.

Corporate loan interest - Euribor or fixed rate

A Euribor rate (Euro Interbank Offered Rate) is a euro-area money market reference interest rate that indicates the price at which large banks lend each other euro loans. Euribor rates quoted daily for periods of different lengths. Euribor rates may have a maturity ranging from one (1) month to three (3), six (6) or 12 months, for example. 

The interest rate of a corporate loan tied to Euribor remains unchanged for the interest rate’s maturity. For example, the interest rate of a loan tied to Euribor 12 months remains unchanged for 12 months, after which it is reviewed on the interest adjustment date. The new interest rate will then be in force for the next 12 months. 

The loan may also have a fixed rate. With a fixed rate, changes in market interest rates do not influence loan management expenses during the agreed interest period; for example, three (3) or five (5) years. 

As a rule, a fixed interest rate for a corporate loan is higher than a floating rate, but carries a lower risk of future fluctuations in interest rate. However, this depends on the current market situation, and it is possible that a previously issued fixed interest rate is lower than the floating rate.

Corporate loan interest includes the lender’s markup

The markup for a corporate loan, or interest markup, means the lender’s share of the loan’s interest. The bank’s markup is used to cover, for example, the bank’s operating costs and risk associated with granting a loan. 

In corporate loans, markup is agreed individually for each customer depending on a number of factors: 

  • the company’s age
  • the customer's solvency
  • registered payment defaults
  • existing customer relationships
  • estimate of the company’s future prospects. 

The loan’s purpose of use and collateral offered also play a significant part in determining the interest rate for the loan. 

A corporate loan with a lower markup is not always the most affordable option, as the overall price of a corporate loan involves other expenses in addition to markup. 

Effective annual interest rate for a corporate loan includes all lending costs

In addition to the corporate loan interest (base rate + bank’s markup), there are fees on drawdowns and loan management. When applying for a loan, it is advisable to consider the overall cost of the corporate loan, in other words the effective annual interest rate. 

Unlike in private loans, the law does not require financing institutions to report the effective annual interest rate of corporate loans. In most cases, however, banks report the effective annual interest rate when applying for a corporate loan.

The effective annual interest rate includes the full costs of the loan converted to the annual interest rate. Effective annual interest rate allows you to see the loan’s true costs and compare the prices of loans. 

How to apply for corporate loan

You can request an offer and apply for a loan for your business handily at op.fi. After you have submitted the loan application online, you will receive personal service from our expert by phone, online or at a personal appointment. 

Our experts will evaluate your company’s overall situation and personalise a suitable loan term and repayment plan. 

When applying for a loan for an existing company, be sure to have the following documents on hand:

  • annual financial statements from the past two (2) financial years,
  • auditor's report, if available, and 
  • accounting run or interim financial statement (if the previous annual financial statement is more than six (6) months old). 

When considering a suitable loan offer for you, we are also interested in your company’s:

  • business plan
  • cash flow statement
  • profit budget, and 
  • forecasts. 

If you are applying for financing for a totally new company, we will want to review your business plan and budgeting plans for the next three years. 

Consider also in advance which assets your company can use as collateral for the corporate loan.

In addition to a suitable loan offer, we also assist you in preparing against various risks in order to ensure that your business remains on a solid footing despite changes in circumstances and interest rates. 

Corporate loan interest - risks and risk management

The interest-rate risk of a corporate loan results from fluctuations in market interest rates. The greater the share of floating-rate interest of your company’s loan, the higher the risk associated with a rise in corporate loan interest rates. 

Fluctuations in interest rate make it harder to predict your company’s business and cause variations in cash flow and profits.  At worst, the interest expenses of a corporate loan may rise high enough to endanger the profitability of your business.

There are a number of ways to manage the uncertainty associated with interest expenses. The management of interest rate risks is therefore aimed at reducing uncertainty related to interest expenses and interest expenses connected with unfavourable interest rate movements.

Protect your loan with interest rate hedging: let us help you select a suitable solution!

Interest rate hedges provide an effective way to manage the interest-rate risk of a corporate loan. We have a wide range of hedging products of offer, from which we help you choose a solution that best suits the needs of your corporate loan and prevailing market conditions. 

For example, interest rate hedging can be used to change the corporate loan from a floating rate to a fixed rate type of loan or vice versa (interest rate swap), to set a maximum interest rate for the corporate loan (interest rate cap) or a fluctuation range (interest rate corridor).

Read more about interest rate risk management >

Repayment of corporate loans

Read more about Payment Protection Insurance on Corporate LoansWhen you apply for a loan, we will also agree on the repayment plan. We will set a loan term and repayment instalment that suit your company and ensure that the loan will not excessively strain your business. You will be able to split repayments over a number of instalments and years.

The most common type of repayment plan for corporate loans is equal amortisation, in which the instalment amount paid remains unchanged but the actual share of interest decreases gradually as the loan principal is repaid. 

In the event of changes in solvency, you can always negotiate changes to the loan repayment schedule with the bank. In some cases, it may also be necessary to opt for a grace period and pay only the interest on the loan. Often, grace periods are necessary when starting out a business, before cash flows become more stable.  

If the company’s solvency unexpectedly improves, you can also negotiate with the bank on a speedier repayment schedule or the repayment of the entire loan at once. 

Changes to the terms of the loan are often subject to a fee. For this reason, during the loan negotiations you should ask what the costs are of having a grace period or changing the repayment schedule.

Read more about Payment Protection Insurance on Corporate Loans >