Reference rate and margin
The reference rate follows central-bank policy and the interbank market. The margin is the bank's compensation for credit risk, capital consumption and relationship profitability — it is company-specific and negotiable.
The margin can be adjusted over the life of the loan through a margin ratchet linked to the company's ratios.
Caps, floors and swaps
A cap limits how high the reference rate can pass through to the company. It is bought against a one-off premium and works as insurance. An interest-rate swap exchanges floating for fixed over a period and is used when the company wants predictable interest costs.
What suits whom?
Companies with sensitive cash flow should consider a cap or swap on at least part of the debt. Companies with strong interest cover can absorb more rate variability. The decision is quantitative — not ideological.
- The margin is negotiable; the reference rate is not.
- A cap provides a ceiling against a one-off premium.
- A swap exchanges floating for fixed — useful for cash-flow planning.
- Rate hedging is a quantitative decision, not an ideological one.
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