Increasingly seeing clients uneasy about interest rate management contracts that they are being asked to sign up to as a condition of getting a loan or a refinance. The underlying concept is right (it gives you the certainty of knowing what your costs are) and the banks are right to promote them. These are however relatively complex instruments and the paperwork is far from easy to understand. These are truly ‘Corporate’ type instruments that have migrated down to smaller business cases. Ok for a qualified Finance Director to understand but perhaps not someone busy running their trade operation? Combine that with the fear that they may not get the loan unless they agree and you have potential for a dispute later on. Closing these deals out (e.g. if the loan is repaid early) can be very expensive for example. Sometimes these deals can also be ‘portable’ so you don’t always have to get it from the bank that is doing the lending. Happy to help anyone needing some advice.
