Business interest and the limits of reasonableness

In the case of a business loan, parties may agree on an interest rate themselves — contractual freedom is extensive. However, that freedom has limits: an excessively high interest rate may be contrary to reasonableness and fairness or good morals, and may be moderated by the court. A recent ruling underscores this.

Interest on business loans

When entrepreneurs lend money to one another or someone provides business capital, interest is customary. The interest compensates the lender's risk and constitutes a source of income for them. The higher the risk, the higher the interest rate that parties typically agree upon.

Freedom of contract, but not unlimited

Unlike consumer credit, where a statutory maximum applies, there is no fixed interest rate ceiling for purely business loans. In principle, parties may determine the interest rate themselves. However, this freedom is not limitless: an interest rate that far exceeds reasonable limits cannot stand up in court.

When is interest excessive?

An excessive interest rate may be contrary to reasonableness and fairness or to good morals, or may be deemed unreasonably burdensome. The judge considers the whole picture: the risk of the lender, the relationship between the parties, the level of the interest rate relative to what is customary, and the circumstances under which the loan was concluded. A recent ruling shows that the judge can reduce an excessively high interest rate.

What does this mean for you?

If you agree on a high interest rate, ensure that it is proportionate to the risk and circumstances, and properly document the agreements. A substantiated, reasonable interest rate holds up; an excessive risk premium can actually cost you part of your claim. Have the loan agreement drafted carefully.

Frequently Asked Questions

How high can commercial interest rates be?

There is no fixed statutory maximum for purely business loans, but an excessive interest rate may be contrary to reasonableness or good morals and be moderated.

Can the judge reduce an agreed interest rate?

Yes, an excessively high interest rate can be moderated if it exceeds reasonable limits.

How do I ensure my interest rate holds up?

Keep the interest rate proportionate to the risk and circumstances, substantiate it, and properly document the agreements.

Arranging a loan agreement properly?

Our legal experts draft a watertight loan agreement with a sustainable interest rate. View our financial lawteam or schedule a free consultation.