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3 Questions to Ask in a Changing Rate Environment

3 Questions to Ask in a Changing Rate Environment

7/30/2018

Interest rates are a hot topic, and will remain on the radar of budget-conscious organizations for the foreseeable future. Rates are rising, and will continue to do so. 

While projects come in all different shapes and sizes, there are some important questions to consider as you prioritize and analyze your options:

  1. What are the estimated project expenses? Consider the timeline of the project in this estimate. Projects wtih longer implementation timelines have greater exposure to interest rate risk, and the rates associated with traditional financing are not fixed until the project is complete. 

  2. What are the terms? The longer the financing term, the more sensitive your project is to interest rate increases. A simple 25 basis point increase on a five-year term can increase your overall interest expense by more than six percent.

  3. What is your appetite for interest rate risk? As you begin evaluating project financing options, the emerging consideration of how you mitigate risk can provide increasing value, should rates continue to climb. If you have longer timeline considerations and prolonged financing terms, managing overall interest rates becomes important. 

Tailored financing structures that include interest rate locks or forward interest rate swap agreements remove uncertainty from your most complex projects by giving you the peace of mind needed to manage interest rate risk. 



 

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First American Commercial Bancorp, Inc. is a wholly-owned subsidiary of City National Bank. Deposit products and services are offered by City National Bank Member FDIC. City National Bank is a subsidiary of Royal Bank of Canada. “First American Equipment Finance” is the trade name for certain equipment leasing and finance businesses of First American Commercial Bancorp, Inc. and its subsidiaries. Equipment financing transactions are provided in Canada by FA Equipment Finance, Inc. For California clients: Loans made or arranged pursuant to a California Finance Lenders Law license. All transactions are subject to credit approval. Some restrictions may apply. All trademarks are the property of their respective owners.

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