The Business Loan Market is Cooling Down: From “Cheap Rates” to “Selective Lending” – Your Loan Might Become More Expensive
Hello everyone, I’m your financial journalist. Recently, if you or someone you know is considering using a mortgage to borrow money from a bank for business purposes (what we commonly refer to as a “business loan”), you might have noticed a shift in the market trends.
In the past, business loans were highly sought after due to their attractive low interest rates, which some even used as a way to buy property at low costs. However, the market is now undergoing a significant transformation. Simply put, business loans are moving away from a competitive bidding war over customers and price cuts towards a more selective approach, focusing on quality borrowers and charging higher interest rates.
To help you understand this better, I’ve broken down this news into five key points in plain language.
1. Interest Rates are Rising Secretly
Although there have been no official announcements, the money in your wallet is feeling tighter. You might notice that the advertised interest rates on bank apps or at branches remain the same, such as 2.35% or 2.4%. Don’t be fooled by these figures; the actual interest rate you’ll receive has quietly increased.
- Current Situation: At the beginning of this year, in cities like Shenzhen and Guangzhou, borrowers with good qualifications could get business loans at minimum rates of 2.35% to 2.4%. But now, the rates in Shenzhen have risen to around 2.65%, and in Guangzhou, they’ve gone up to 2.75% to 3%. State-owned banks are generally charging around 3%.
- Future Trend: Industry insiders suggest that this is just the beginning. Interest rates are likely to continue to rise, possibly exceeding 3% in the future.
- Why No Official Announcement? Banks are smart. Instead of issuing formal notices about rate increases, they use tactics like ending promotional offers or tightening approval processes to gradually raise the actual lending rates. It’s like a supermarket removing discounted items without changing the prices; you’re forced to pay the full price.
In one sentence: Stop focusing on the lowest rates—they’re meant for a very small group of elite borrowers. For most people, the cost of borrowing is returning to a more normal level.
2. Policy Changes
Banks are no longer motivated to offer such low rates due to changes in regulatory requirements. Previously, there was pressure from authorities to ensure that the growth of “inclusive micro-loans” (including business loans) kept up with the overall loan growth. It was like teachers forcing students to score above 90%, regardless of their abilities, leading banks to aggressively offer loans and engage in price wars.
- New Regulations: The 2026 regulations no longer strictly require loan growth; instead, they emphasize stable lending, improved quality, and sustainability.
- Banks’ Attitude: Previously, banks focused on increasing the volume of loans; now, they’re more concerned about whether the loans will be repaid and whether they’ll generate profits.
- Result: With less pressure to meet targets, banks are no longer willing to offer loans at losses. The return to normal interest rates reflects their newfound ability to make informed decisions.
In one sentence: Banks are no longer forced to offer loans at low rates; they’re now more selective and calculating their risks more carefully.
3. Rising Loan Losses
Another practical reason for the tighter lending is the increasing number of non-performing loans. Many loans are not being repaid.
- Data Highlights: The non-performing loan rates (the proportion of loans that go into default) are rising at many listed banks. Some banks have rates over 2%, with some even exceeding 5%. For example, the non-performing loan rate at Yibin Bank soared from 5.28% at the beginning of the year to 7.95%.
- Who’s Affected? Mainly small and micro-business owners whose profitability has declined. The economic environment has worsened, making it harder for them to repay their loans.
- Banks’ Concern: Banks fear losing their principal investments. When non-performing loans increase, their first reaction is to reduce risk.
In one sentence: What used to be a low-risk, profitable business loan option is now becoming a source of significant losses for banks.
4. Increased scrutiny of “Fake Business Activities”
Banks are now more stringent in verifying the purpose of loans, especially those used for buying property.
- Historical Issues: In 2019-2020, many intermediaries pretended to be owners of trading companies and used low-interest business loans to buy property. Since trading companies typically don’t have physical assets, this made it easier to conceal the purpose of the loans, and banks didn’t conduct thorough checks.
- Current Situation: These loans are now reaching their renewal periods, and banks are facing challenges. Property values have dropped, increasing the risk. Banks are focusing on borrowers with trading backgrounds, as they lack real business operations and have complex funding flows.
- Consequences: Many borrowers who used business loans to buy property are now facing difficulties in renewing their loans. Banks either refuse to renew them or raise the interest rates significantly, forcing them to repay early or seek other financing options.
In one sentence: Those who took advantage of previous loopholes in the system are now being held accountable by banks, which are cleaning up risky borrowers.
5. A New Reality for Borrowers
While the overall environment has become stricter, it doesn’t mean everyone will face higher loan costs. Banks are focusing on providing quality loans to deserving borrowers.
- Who Can Get Low Rates?
- Real Business Operations: You need to have a physical business, stable cash flows, and reliable income to support your repayments.
- Sufficient Collateral: Your property or other assets must have stable value.
Banks are still willing to offer lower rates to these “quality customers” as they represent long-term partners.
- Who Will Be Rejected or Face Higher Rates?
- Trading Background: Those without tangible assets or complex funding flows.
- Poor Credit: Those with a poor credit history or unstable business performance.
- Suspected Property Purposes: Banks will verify whether the funds are indeed used for buying property.
In one sentence: Business loans are no longer universally available at low rates. They have become a more exclusive service, available only to those who are truly in business and have a solid financial foundation.
Advice for the Public
- If you want to start a business: Don’t expect the same low rates as before. Prepare a budget that accounts for potential rate increases and provide accurate financial documentation to prove the legitimacy of your business.
- If you used a business loan to buy property: Check the loan’s renewal date and communicate with the bank in advance. If you need to repay early or face higher rates, prepare the necessary funds or consider other financing options.
- Be cautious of intermediaries: Banks’ risk controls are stricter. Those offering guarantees of approval or low rates may be trying to deceive you and could even expose you to legal risks.
In summary, the business loan market is becoming more rational. For banks, it’s about better risk management; for borrowers, it means higher costs. It’s important to understand the new reality, assess your situation carefully, and make informed decisions.