Cash is King – Interest Rate Risk Management for local businesses
This old adage is certainly true in times of uncertainty, and more so in the aftermath of natural disasters as we have seen in Qld, but the Wide Bay specifically over recent months.
Mastering the volatility of interest rate risk – Creating certainty in every environment
Uncertainty can affect your business, disrupting your cash flow, undermining profitability and even delaying future plans for growth.
Changes in interest rates are a major source of volatility – the interest rate market is moving constantly, which can make it hard to control your costs (see chart below). While you can’t control interest rate movements, which are influenced by market rate movements and changes in cost of funds as well as margins, you can protect your business from interest rate risk.
We understand how important it is to create a strong, certain foundation for your business. We also understand how interest rates work and how they will affect your business. Our team of Interest Rate
Specialists will work closely with you to create the unique solution to interest rate risk that your business needs.
A study in volatility: three-year fixed Business Markets Loan Rate – 2000-2012*
Creating an interest rate strategy
The first step in managing your interest rate risk is creating a plan. Here’s what you need to think about:
- Your business goals
- Your assets and debt
- How and when you will repay your debt
- Your ideas on how rates will move
- How much risk you are prepared to take
- How changing rates will affect your cash flow.
Find the right approach: the NAB Business Markets Loan®
The Business Markets Loan (BML) provides the flexibility you need to help you take control of your interest rate risk. As the environment changes, so can your loan.
One loan, great flexibility
The BML is a simple way to manage interest rate risk while tailoring cash flow to match your specific needs. Features include:
- A single loan account with five interest rate risk management components – floating rates, fixed rates, range rates, cap rates and flexible maturity fixed rates – that can be used in multiple combinations
- Tailored cash flow to match your specific requirements e.g. principal reductions, stepped payments up or down etc (subject to credit approval)
- Ability to lock in market rates, cost of funds and customer margins.
One call, immediate restructure
Once your credit has been approved and the contract signed you can, at any time, change the floating rate to any other component with a single phone call. All without the hassle of re-signing loan documents or having your credit re-approved.
The BML also allows you to adjust your loan as your business needs change (with 24 hours notice). For example, you can make additional payments if you have extra cash flow.1
One bank, many interest rate specialists
We understand that life is unpredictable – markets move and your circumstances can change. We won’t make you live with the wrong loan. Your Interest Rate Specialist and Business Banking Manager will continuously review your interest rate strategy to make sure it is right for your business.
For floating loan – your specialist will consider all the solutions available.
For existing fixed loan – your specialist will consider innovative solutions to best suit your needs i.e. other strategies can be put in place before the fixed component expires.
The following examples are just two of the many solutions available:
This enables a business to secure an interest rate ‘today’ to commence at a known date in the future.
Example 2: Restructuring your existing fixed rate prior to the expiry
There are times when the yield curve may provide the opportunity to follow the market lower by extending the fixed term. Situations such as these can have an immediate cash flow benefit.
If your business loan is currently fixed with another bank, NAB may be able to assist you to move by blending in any economic cost into the fixed rate of the new NAB loan.
Things to consider
As interest rates may move, there are risks associated with fixing interest rates and using interest rate management products. Any request to break a fixed rate or a cap, collar or floor before the end of the agreed term may result in costs and charges being imposed which are dependent on the prevailing interest rates and the time remaining to maturity.1 Economic cost may apply when changing components other than floating
Your NAB team in Bundaberg – contact details
Shaun Rose Jason Chester
Senior Business Banking Manager Business Banking Manager
T: 07 4150 7310 T: 07 4150 7315
M: 0414 266 419 M: 0488 762 069
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