Banks differentiate between short-term operating loans to finance floating assets, and long-term investment loans to finance fixed assets.
Foreign funds granted to the business for more than one year are long-term loans. Bonds maturing at less than one year, which fall due for payment, are short-term foreign funds.
A current account credit facility is the traditional instrument for covering short-term liquidities and for payments. The credit line and interest rate vary according to the risk.
The financial institution pays minimum interest on credit balances of 0.125% or 0.25%. If you actually submit a loan application, the bank, takes a quarterly fee in addition to interest. This fee is usually 0.125% or 0.25%, deducted from the amount of the largest loan or from the average amount. The total of this fee and the amount from which it is deducted (amount of largest loan or average amount) also need to be determined.
A variation of the current account credit facility granted by banks is the fixed-term advance, with maturity of 1 to 12 months.
Young entrepreneurs are almost never granted unsecured loans (without collateral). Even established businesses can only get unsecured loans if they have proven that their business is flourishing and that they repay their debts on time for many years. Collateral, such as real estate that is not fully mortgaged, life insurance which is not yet pledged or transferable securities, have positive effects on costs (interest rate on loan).
Banks grant bank loans, that is, investment loans or fixed-rate loans, for the long-term financing of capital goods. These loans must be repaid in installments or in a single payment on maturity.
Fixed-rate mortgages on commercial real estate are comparatively cheaper, and real estate used as collateral must therefore be negotiable.
Value of the interest rate
The interest rate depends on the base interest rate for the refinancing of low-risk credit, i.e. the LIBOR (London Interbank Offered Rate, the market interest rate at which leading London banks grant each other short-term loans), for periods of less than 12 months, or the swap rate (interbank rate) for periods of more than one year.
As a general rule, the longer the period, the higher the interest rates. The bank adds a fee to this market rate for risk, equity and management costs, and also for its profit margin. This fee is expressed in basis points (1 basis point = 0.01%) or, as in Switzerland, as a percentage. It depends in particular on the debtor’s risk (rating), the loan amount and the collateral proposed. At the same time, the relationship with the bank (and not just in terms of granting the credit facility) can be an important factor.
