Following the sovereign debt crisis, bank interest rates charged to non-financial firms declined sharply in the euro area. This work explores the firms' balance-sheet channel hypothesis on the role played by firms' characteristics and risk profile in the transmission of monetary policy. Using a European firm-level survey, we find that in all countries changes in borrowers' characteristics play a non-negligible role. They account for 23 out of 289 basis points of the total interest rate drop in vulnerable economies, and 35 out of 160 basis points in core European countries. The improvement in financial situation is the key firm characteristic driving the decline in interest rates in vulnerable countries, whereas in core countries the decline is mainly due to a shift in bank credit towards relatively larger borrowers.