This research note examines empirically the determinants of bank interest rate premia for a sample of UK small firms over the period 1986 to 1991. A number of testable hypotheses are formulated regarding the relationship between interest rate premia and a number of firm-specific risk and cost factors. The empirical results indicate that interest rate premia are significantly related to several of the firm-specific cost and risk factors. These results suggest that there has been some attempt to incorporate into loan pricing decisions both the direct costs associated with individual loan advances and the specific risk characteristics of the borrower. Copyright Blackwell Publishers Ltd 2000.