Which factor can significantly reduce the cost of borrowing from a bank?

A guarantor can significantly reduce the cost of borrowing from a bank because they provide an additional layer of security for the lender. When a guarantor agrees to back a loan, they assure the bank that if the borrower defaults on the loan, the guarantor will take responsibility for the repayment. This reduces the bank's risk, as they have a more stable source of repayment in the event of default.

Having a guarantor can lead to more favorable borrowing terms, such as lower interest rates or reduced fees, because the bank perceives the loan as less risky. Banks typically evaluate a borrower's creditworthiness and financial health, and the presence of a guarantor can mitigate concerns about the borrower’s ability to repay.

In contrast, factors like a history of financial losses can deter banks from lending or lead to higher interest rates due to increased perceived risk. A strong business plan, while important, primarily serves to demonstrate the viability of the business rather than directly impacting the costs of borrowing unless it is paired with other positive financial indicators. High-interest rates represent a cost factor, rather than a mitigating one, as they increase the total amount payable over the loan duration. Hence, the presence of a guarantor functions as a safeguard that can make lending more attractive for banks