Libor Scandal may Affect Interest Rates and Your Business - Free Enterprise
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Libor Scandal may Affect Interest Rates and Your Business

The London interbank offered rate - or Libor - has been the topic of conversation as bank regulators try to figure out how far the interest rate rigging scandal goes.

The problem began when it became apparent that Barclay's bank had attempted to fix the Libor on two occasions. Then it became clear that other banks had been working with Barclay's to fix interest rates.

The scandal may seem far away since it originated in London but its reach is much closer to home. Libor doesn't just affect interest rates in the UK. It's also part of regulating U.S. interest rates.

Interest rates are crucial to small business loans and Libor is tied to those too.

Libor is used to determine the ongoing interest for many adjustable-rate loans which means some business loans will be affected by the scandal.

If you have an adjustable-rate business loan keep an eye on the interest rate which may change as the scandal is sorted out. Rates could go up but they also could go down.

Credit cards are another vehicle that have adjustable interest rates if you carry a balance. While regulations on consumer credit cards require companies to keep interest rates steady and not increase them frequently, business cards have no such protections.

Interest rates on credit card debt are likely to be affected by the fallout, reports The Wall Street Journal.

The good news for businesses is that fixed interest rate loans will likely not change automatically regardless of how much interest rates change given the Libor fallout.

That means if rates go up you won't have to worry about climbing interest payments. But if after things settle down, interest rates go down it may be a good idea to renegotiate your loan's interest rate.

It's likely that interest rates will fluctuate in the next few weeks or months but that doesn't mean all changes are ok.

If you're unsure about whether changes to your interest rate are legitimate, contact an attorney or your bank to make sure everything checks out.

Libor is a complicated system and the fallout is sure to affect many financial vehicles that rely on the interest rate calculations. Don't make the mistake of assuming it won't affect your business.


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