Risk-based pricing
What is risk-based pricing on a business loan?
ONE OF 180 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Risk-based pricing sets a loan's margin from the risk it carries rather than from a rate card: enough to cover the losses the bank expects on that grade of borrower and security, and to pay for the capital it must hold against the loan, before funding and running costs. It is why two businesses borrowing the same amount on the same day can be offered different margins, and why a stronger risk grade or better security is the way to move a price a long way. The room to negotiate is in the fees and the structure; the floor is the arithmetic.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
// SUBSCRIBE
The Lab.
One case file and one question, in your inbox every Tuesday morning, New Zealand time. The senior banker's read opens only after you answer.
FREE WITH IT · THREE PDFS
An interview case, an annotated credit paper, and a one-page loan application sheet.
No spam. Unsubscribe anytime. Educational content only.