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UK Finance has released a new guide to help SMEs who will need to face to change in benchmark interest rate.
LIBOR (London Interbank Offered Rate ) is the most common interest rate benchmark in the UK, the transition to alternative rates will impact a significant proportion of UK businesses. It can be found in commercial loans, leasing and servicing contracts, commercial contracts and company pension schemes.
This change will affect both new and existing borrowing. From 1st April this year, new sterling loans will no longer be based on LIBOR, and any existing contracts with LIBOR exposure will need to be changed before 31st December 2021.
On 4th March the Financial Conduct Authority (FCA) confirmed that LIBOR will discontinue across most currencies at the end of 2021. While the banking industry has been working towards this end date for some time, the announcement provides renewed certainty and confirms the need for action. Banks and lenders have already started to contact impacted businesses to discuss contracts and the new rates and will continue this contact in the coming months.
In response to the change, UK Finance has launched a new guide has to help businesses understand the potential impact of the end of the rate change.
The introductory guide has been created by a group of industry trade bodies including UK Finance and the Confederation of British Industry (CBI) has been designed to help businesses understand what the change in benchmark interest rates means, if it affects them, what they could do to prepare and where they can go for more information.
Daniel Cichocki, LIBOR Transition Director at UK Finance said “With Covid-19 and Brexit preparations, it is perhaps no surprise that a benchmark interest rate change has not been at the top of the list of priorities for many SMEs. However, the deadlines are looming and we urge businesses to minimise any impact by reviewing the extent of their exposure and preparing for the rate change. Banks and lenders are on hand to help and are supporting customers with the move to more robust replacement rates as LIBOR ends.”
Chris Wilford, Head of Financial Services policy at the CBI said “LIBOR transition will have an impact in some form on most businesses. From existing financial commitments to new systems, they should be speaking with lenders and seeking advice on what this means for them now. It is important they don’t get caught out and make sure LIBOR is on their list.”