Using a large sample of firms from nine European countries, this study examines the relationship between bank efficiency and the cost of credit for borrowing firms. We hypothesize that bank efficiency – the ability of banks to operate at lower costs – is associated with lower loan rates and thus lower cost of credit. Combining firm-level and bank-level data, we find support for this prediction. The effect of bank efficiency on the cost of credit varies with firm and bank size. Bank efficiency reduces cost of credit for SMEs, but does not exert a significant influence for micro companies and large firms. Furthermore, the effect is driven by large banks, where improvements in cost efficiency tend to be strongly associated with lower cost of credit. Overall, our results indicate that measures that increase bank efficiency can foster access to credit.