The answer is that a bank cannot determine a client's interest rate until the application has been processed for approval. The main reason is that interest rates are predominantly calculated on individual merits, because the risks from business to business are significantly different.
Even though banks may not be able to determine interest at face value, the process of establishing one's payable interest is straightforward. The key factor is the credit repayment profile of the business owner and/or a compelling business case as well as other supporting material. Based on these elements, a bank should be able to advise the entrepreneur whether it can potentially grant credit, how much credit payable over what period and at what interest rate.
Over the years, the credit process has evolved for the better. Banks have been bringing down the cost of granting credit by introducing slicker credit review processes, such as encouraging businesses to start using online banking channels. Bringing down the cost has enabled banks to price more competitively.
Whilst the systems have improved, some of the fundamental issues persist and need equivalent commitment from all role-players. Amongst the main issues is the education that needs to go hand-in-hand with providing or accessing credit. Additionally, the banks need better co-operation between credit grantors to get the full picture of a business that is applying for credit, as there are still credit providers that do not submit relevant information to the bureaus on businesses.
It is in the best interest of entrepreneurs and credit providers to have accurate information on which credit decisions are based. There is a need to reduce the gap by educating each other about the pros-and-cons of the credit process and banks are increasingly working closely with entrepreneurs to help them understand lending processes.
