For any borrowing that has been provided against variable interest rate terms, assumptions need to be made about future interest rates, for financial forecasting. If these assumptions are too optimistic, the capacity of the borrower to service its loan may come under a degree of strain.
To reduce this risk and provide more certainty on future interest costs, nursery businesses may be thinking of fixing the interest rates on their loans. Alternatively, hedging instruments such as interest rate swaps, caps, and collars can be considered as tools for managing interest rate risk.
Interest rate swap arrangements exchange interest payment obligations between two parties, without exchanging the underlying obligation to make principle repayments. For example, a nursery will pay its bank a fixed rate of interest on each payment date, while the bank will pay the corresponding floating rate of interest as at that date.
Register now to continue reading
Thank you for visiting Nursery World and making use of our archive of more than 35,000 expert features, subject guides, case studies and policy updates. Why not register today and enjoy the following great benefits:
What's included
-
Free access to 4 subscriber-only articles per month
-
Unlimited access to news and opinion
-
Email newsletter providing activity ideas, best practice and breaking news
Already have an account? Sign in here
