About two years ago, I took out a loan from my local bank at 8%. Since then, the Federal Reserve has cut rates many times by roughly 3%. Indeed, my home equity loan rate has fallen from about 7.5% to 4.5%. Therefore, I contacted my bank with the hope of refinancing the business loan and was told that the rate has only fallen to 7%. My credit rating is extremely high and has gone up over this time.
My question: Is 7% really the best business loan rate these days, or is my bank trying to rip me off?
I wouldn't say you are being ripped off, but you might be able to do a little better with some veiled threats about changing banks and sharp negotiation with your bank. I have a line of credit with my bank with a small outstanding balance right now. I think I pay prime plus 1%, which is pretty much the going rate for small businesses.
Remember prime rate is the rate banks lend to giant companies with vast resources. In business school we were taught this was "the rate banks give their best customers" which annoys me as a small business. I am like you, I have a super high credit rating, have never missed a payment, business has grown every single year and yet I have not fallen into this elusive "best customer" category where I get the loan at prime.
I doubt as a small business you will get less than prime unless it is some type of promo the bank is running, which they don't seem to be running much of these days with the credit crunch and all. However it probably wouldn't hurt to negotiate a little harder and see if they won't shave a bit more off that rate for you.
Thanks for your reply. I talked with another banker who is my brother's friend's dad. He said 7% was a bit high. 6% to 6.5% for 2-3 years would be more reasonable. He said the banks don't want to go too low for too long, as they think inflation will rise and rates go up pretty fast.