Banks charge higher interest rates and impose stricter terms on loans to riskier borrowers, such as smaller businesses with less cash and harder-to-value assets. This is because these borrowers are seen as more likely to default on their loans. The size of the loan, whether it is secured by collateral, and the length of the loan all affect the interest rate. Riskier firms are more likely to face tighter loan terms, like smaller loan amounts, collateral requirements, and shorter repayment periods. Profitable and larger firms, on the other hand, can secure loans on better terms.