Dealerships can get better protection from rising interest rates

May 2006

Bank of Scotland Dealer Finance is offering its dealers access to services which help negate risk from an increase in the rate of interest by the Bank of England.

The new service delivered by Bank of Scotland Corporate Treasury allows businesses to minimise risk from term debt, stock funding or business overdrafts by using hedging and other services that help manage problems arising from fluctuating interest rates.

For nearly a decade, interest rates in the UK have remained relatively low and stable, benefiting large and small businesses, creating consumer confidence and leading to one of the most successful eras in the automotive retail industry. The challenge for the industry and the UK economy is to try and predict how much longer lending conditions will stay this way.

Now, Paul McGill, Director of Bank of Scotland Dealer Finance, believes interest rate hedging is one way to manage this risk and is a method available to all businesses with long-term debt.

"No one can say how long interest rates will remain low and the rate of interest is an unpredictable risk for most businesses with long-term debt, but there are ways to protect business from changes in the cost of borrowing.

"Car dealerships have different financial facilities comprising of a mix of financial products depending on their business need, but despite these differences most organisations will be able to benefit from Hedging and other Treasury services that help manage the risk of fluctuating interest rates. Rather than being a technique that is the preserve of the foreign currency markets, interest rate hedging can manage the risk against rising interest rate costs and give certainty, allowing dealerships to concentrate on what they do best: providing motorists with their dream vehicles."

Any term debt, stock funding or business overdraft can be hedged, meaning long-term business decisions can be made more easily, because interest repayments will remain within manageable levels. Dealerships do not need to be customers of Bank of Scotland Dealer Finance or Bank of Scotland Corporate in order to take advantage of hedging and treasury services.

Paul concludes, "Most automotive retailers will agree that interest rates might not be going to get much lower, so putting in place some sort of interest rate hedging policy would seem a prudent step to take to ensure that businesses can make future decisions safe from changes enforced by the Bank of England."

Press contacts: James Crawford or Nancy Jones at Euro RSCG Biss Lancaster on 0161 236 2277 or email firstname.lastname@bisslancaster.com