Why Your Bank Repriced Your Loan

A business loan's rate is a base rate, which the market sets and which moves on its own, plus a margin, which the bank builds, plus fees. A repricing at review is almost always the margin or the fees — the line fee on a revolving facility, the establishment fee at renewal. Separate those from any movement in the base rate before anything else, because the base rate is nobody's decision at your bank and the margin is. Then read your facility letter's pricing clause: a committed term facility usually fixes the margin for its term, while a facility renewed at review, or an overdraft on demand, can be repriced.

The five map onto the pieces How Banks Price a Business Loan builds a margin from, and onto the four Pricing and Fees says move it. The useful thing about the list is the last word on each line. Two of the five are about you, and they are the two you can change. The other three are real, and arguing with them mostly wastes the meeting.

Your risk grade is reset at every annual review, and it is the line in the review that moves the most money. It is built from the accounts — cover, leverage, the cash cycle — and from what the accounts do not show: the industry, the people running the business, how good and how timely the information is, how the account has been run. A downgrade raises the expected loss priced into your margin and the capital the bank must hold against you, both at once, and it can also send your next request to a more senior approver and bring your reviews round more often.

The part borrowers underestimate is behaviour. A business whose numbers hold up but whose management accounts arrive later each month, or whose finance lead has just left, can be graded down on what the desk sees rather than what the accounts say — the pricing guide's example from Issue 09 is exactly that. Which makes the grade the most negotiable of the five reasons: not by arguing, but by changing what the desk reads. The monthly pack is where that starts.

Some repricings have nothing to do with you. The bank's treasury charges its lending desks for money by term, and when that charge rises, every loan of that term costs more to hold. Capital rules change, and some facility types or industries become more expensive to carry. The bank decides it has enough lending in your industry, and prices to slow its growth rather than to win. Or the price you were given three years ago was set to win you from another bank, and the first review is when it returns to the bank's own build-up. None of these can be argued away in a review meeting, because the relationship manager did not set them and cannot unset them. What they can tell you is whether another bank would price you differently — which for the last two reasons it may.

The shape. A longer term costs more to fund; a facility with less security loses more if the business fails; a revolving line that has quietly become permanent is a term loan at a line's price, and a line held but never drawn still costs its line fee. When the facility itself has changed, the price follows it, and the conversation that lowers it is about the structure: a term-out of the permanent part, a shorter tenor, security the bank values, a limit sized to what you use.

The relationship. A loan can be priced below its own build-up because deposits, transaction banking and other business earn part of the return the bank wants from a customer. When that business moves elsewhere, the loan has to carry itself, and its price rises to its own build-up. Relationship managers are measured on the whole relationship — the RM scorecard explains how — which is why the margin conversation so often turns into a conversation about your transaction account. Moving business back can be worth it; buying products you do not need to save a few basis points rarely is. Do the arithmetic at the way you actually use the bank.

Ask which of the five it was. A relationship manager will rarely tell you your grade, which is an internal scale, but will usually discuss what moved it, and what would move it back. Then answer the reason rather than the number. For the grade: better and earlier information, the weak line explained before it is found, a covenant with headroom restored. For the shape: a structure that costs the bank less to hold. For the relationship: the business you are willing to move, priced honestly. For the bank's costs and the market: a comparison with what another bank would actually offer, at the way you use the money. Put what you can change in writing, with dates, and ask for the margin to be revisited when it is done — a margin that stepped up can step down at the next review if the reason has gone.

When the reason is the market — the bank's appetite for your industry has turned, or its funding costs have moved further than its competitors' — another bank may genuinely price you better. When the reason is a price set to win you, an offer from another bank may be the same cycle starting again. When the reason is the grade, a new bank will read the same accounts and the same habits, and the saving may not survive its first review either. Refinancing and Switching Banks sets out what leaving costs — break costs, fees, the time a new bank takes to know you — and which reasons for leaving travel well. A repricing is a good moment to test the market, and a poor reason to leave a bank that has watched you through good years, if the difference is small.