Will my business be affected by the transition away from Sterling LIBOR?

The London Inter-Bank Offered Rate (Libor) is one of the most important numbers in financial markets but is currently scheduled to end on 31 December 2021, and businesses looking to get a fully rounded cashflow picture will need to understand how Libor could affect existing loan agreements or any other hidden places that have referenced the benchmark rate.

What you need to know about the transition away from Sterling LIBOR

The LIBOR benchmark that is currently used by lenders to calculate the interest rate for financial products will end after 2021 and move to a safer more transparent benchmark rate.

From 1 April lenders will no longer be able to issue loans based on LIBOR and instead will need to reference a ‘risk-free rate’ or an alternative non-LIBOR rate. Existing contracts based on LIBOR will also be switched to an alternate reference rate before 31 December 2021.

A change in interest rate could impact your business both for existing loans and new financing so it is important you understand if and how this affects you. Your bank should be in touch to discuss the products you have affected by this and the new rate.

Does the transition away from Sterling LIBOR affect me?

LIBOR can be found mainly in commercial loans, but also in leasing and servicing contracts, commercial contracts, discount rates used in valuations and company pension schemes.

What can I do about the transition away from Sterling LIBOR?

1. Review any loans or products that are based on the LIBOR rate and identify where else in your organisation references LIBOR (e.g. accounting systems or late payment clauses).
2. Assess the alternative rates being offered and assess what impact a rate change might have on your business as a whole.
3. Plan how you will transition away from LIBOR by the end of the year.
4. Speak to your bank, lender or financial advisor if you are unsure of your exposure or have any questions.

Please get in touch with your normal Wright Vigar contact if you have any questions regarding these changes.

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