Commercial bills are generally associated with business lending or high-end investment lending.
They provide an injection of cash for borrowers who need more than $100,000. These types of loans are generally rolled over until the borrower has the funds to repay the loan amount in full.
How do commercial bills work?
A commercial bill assists you to raise the finance you need for investment purposes through negotiable bank bills. The interest rate, or floor rate, is based on two things, the Bank Bill Swap Rate (BBSW), and a margin added by the lender of 1.00-3.00% called the facility fee. This margin can vary significantly between lenders, depending on a combination of factors including the financial strength of the borrower, the underlying security, competitive pressures, etc.
The bills can be either variable rate or fixed rate, with periods varying between one and 10 years. During the loan term there are rollover periods, at which time the interest rate and the amount borrowed may be recalculated. The rollover period may be 30, 60, 90, 180 days, six monthly or even annually. Interest is paid at each rollover, and you may negotiate any number of combinations to suit you.
Ceiling rates
Similar to capped rates, a ceiling rate is a feature applied to a variable rate commercial bill that puts a ceiling on, or limits, how high the rate can go. This can be particularly useful in a volatile interest climate, but be aware that lenders will generally offset the potential costs of a ceiling rate with a higher starting, or floor rate.
Interest rates and terms
With fixed rate bills, your interest rate is constant for the term of the facility, which may include several ‘rollovers’. With variable rate bills, the interest rate is fixed for each rollover period, and may change as the period is extended or rolled over, the interest rate may rise or fall.
