Interest Rate Business Risk Management
Take the risk off the table
In the current interest rate environment you may be concerned about your company's floating rate debt and the potential impact of increased interest expenses on your bottom line. What can you do to protect yourself? One solution is to take the risk off the table by exchanging your floating rate for a fixed rate in a transaction known as an interest rate swap.
In a rising rate environment, a swap offers
- A way to lock in your borrowing cost
- Considerable flexibility for your commercial finance solution
- Options for all or part of your floating rate debt — basically, whatever amount you want and for as long you want, subject to credit approval
Additional swap information
- Minimum for an interest rate swap is generally $500,000
- Terms can be one year and longer and the rate may be tied to Prime or (more often) to LIBOR
- No transaction fees
Here's how it works
Suppose you have a $1 million loan priced at LIBOR + 2.50%. Rather than refinance into a fixed rate loan, you can swap your floating rate payment for a fixed rate payment. You continue to pay BBVA Compass the variable rate on the loan at LIBOR + 2.50%. BBVA Compass (the bank issuing the swap) will agree to pay you LIBOR + 2.50% while you agree to pay BBVA Compass a fixed rate. In effect, the two floating rate payments cancel each other out, leaving you with a fixed rate payment.
If your business has floating rate debt, consider a swap.
Contact us at 713-345-1627.