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Interest Rate Swap

Managing debt and cash flow more effectively is critical to the success of every business.

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Routine and unanticipated expenses have to be managed while also strengthening your capital base. First National Bank Interest Rate Swap offers the benefits you need.

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Interest Rate Hedging

An interest rate hedge is a financial solution to minimize, or hedge, your risk based on commercial loan interest rates. Rate hedging allows qualified loan customers to exchange a variable interest rate for a fixed commercial loan rate applied to a defined period. It can increase cash flow predictability and may save on interest expenses.

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Interest Rate Swap

As your company has grown, perhaps you’ve accumulated variable-rate commercial debt. While it has benefited your growth so far, you may now be interested in an option to secure predictable cash flow and interest expenses.

At FNB, our options for interest rate hedging may provide a solution. You can secure a preferred commercial loan rate without renegotiating your existing loan. For qualified FNB clients of all sizes, an interest rate swap might be the right solution to achieve predictable cash flow and interest expense.

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Interest Rate Swaps

Today, most interest rate hedging uses a financial product known as an interest rate swap. A rate swap does not renegotiate your existing loan, rather, it is a separate transaction that leverages a bank’s borrowing power to stabilize your rate. Many companies opt for a swap to exchange a variable rate for the simplicity of a fixed-rate payment.

A rate swap may offer you:

  • Protection from rising rates
  • Customized solutions
  • Enhanced credit availability
  • Greater cash flow predictability
  • A longer-term loan
  • No upfront cost

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Customizable Swap Solutions

We partner with you and your FNB banker to discuss your preferred method of interest repayment, then we design a swap solution that works for you. You might opt for:

  • Fixed-rate loan (floating-to-fixed swap): This option gives you a set interest rate with set payments for long-term predictability.
  • Blend and extend loans: These loans factor any prepayment penalty into the new swap rather than asking you to pay it out of pocket. Your new loan incorporates the penalty in your fixed-rate product.
  • Forward starting swap: This hybrid approach, used primarily for construction loans, ensures a fixed rate at a certain point in the future. Meanwhile, you can hold a variable rate position during construction or any other draw period. You avoid interest accrual during the draw period and mitigate your future interest rate risk with a fixed position.
  • Floating rate (fixed-to-float or float-to-float swap): With a variable rate that can fluctuate month to month, you may be able to take advantage of a lower starting interest rate.
  • Interest rate cap: By paying an up-front premium, you can reduce your risk exposure in the future if rates go beyond a certain level.
  • Zero-cost rate collar: You may wish to offset the premium cost of an interest rate cap with a zero-cost rate collar. By selling an interest rate floor to FNB, you can secure your interest rates within a specific collar, at zero cost to you.

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