NAB BUSINESS
MARKETS LOAN
Product information summary
Depending on your risk profile, needs and circumstances, NAB’s Markets Specialists can offer your business a range
of financial solutions to assist in managing interest rate risk. Please contact your Relationship Manager to arrange
an appointment.
IMPORTANT INFORMATION
This document is a guide only. It is intended to be read alongside the full terms and conditions.
NAB Business Markets Loans are only available to approved customers.
For more information about NAB Business Markets Loans, or for full terms and conditions, please contact your Relationship
Manager.
Australian distribution only
This document is intended for distribution in Australia only. Receipt of it in jurisdictions outside Australia may be restricted by
local law. Anyone who comes into possession of this document who is not in Australia should seek advice.
General information only
The information set out in this document is general in nature. By providing this document, National Australia Bank Limited
(“NAB”) does not intend to provide financial advice or any financial recommendations.
NAB BUSINESS MARKETS LOAN
What is a Business Markets Loan?
A Business Markets Loan is an interest in arrears term loan
with market-linked pricing and embedded interest rate risk
management options.
How does it work?
The Business Markets Loan has the flexibility to help you
manage interest rate risk and offers market linked pricing.
Once a single limit and expiry date is approved, a combination
of components can be set up under this limit, as long as the
sum of the loan monies attributable to the components does
not exceed the facility limit and any one component does not
exceed the expiry date or the relevant term/limit (if any) for
that specific component.
What components are available?
• Floating Rate
• Fixed Rate(s)
• Flexible Maturity Fixed Rate(s)
• Cap Rate(s)
What Loan Structures are available?
The cash flow of the loan can be tailored to match your
business’s specific requirements. Available structures are:
• Principal and Interest Loans – principal payments and
interest payments are required. The principal amount may
be a regular or variable amount each period.
• Interest Only Loans – you elect to pay only interest.
The availability of each loan structure is subject to credit approval.
What is the minimum amount of each loan?
As approved by NAB.
What fees are applicable?
Fees, charges and premiums apply for the Business Markets
Loan, depending on the component selected.
For Other Fees and Charges, see NAB’s ‘A Guide to Fees and
Charges – Business’
For more information, call your Relationship Manager.
What term is available?
Up to 15 years with longer terms subject to our lending criteria.
When is interest paid?
Interest is payable up to Banking Days following the end of
each pricing period and on the Termination/Expiry Date.
How are interest rates determined?
Interest rates are based on the weighted average of the
interest rates applicable to each of the loan components.
How are floating interest rates determined?
Floating interest rates are calculated using the applicable
NAB Business Lending Rate plus your customer margin.
The Floating Rate is reassessed for each pricing period.
The Business Lending Rate is the rate determined by NAB
which is equal to the Australian Bank Bill Swap Reference
Rate (Bid) administered by ASX Benchmarks displayed on
page BBSY of the Thomson Reuters Screen on the first day
of that Pricing Period for a period equal to that Pricing Period
(or where the Pricing Period is less than 1 month, a period
of 1 month) and which starts on that day plus a minimum
return margin.
If BBSY is not available, a comparable rate will be used.
NAB will periodically publish one or more indicative NAB
Business Lending Rates on nab.com.au and you can contact
NAB for information about current rates.
How are fixed interest rates determined?
Fixed interest rates are determined and advised by NAB prior
to commencement of the fixed rate component, and apply for
the term of the fixed rate component.
FLOATING RATE COMPONENT FIXED RATE COMPONENT
Description
A floating rate component with no interest rate risk management
function. For each pricing period, the applicable interest rate
will be the floating rate.
Applications
This component may suit a business that is comfortable with
the risk of any changes in the interest rates during the term of
the component whilst retaining the opportunity to enter into
one of the other components at a future date.
Advantages
• The ability to enter into one of the other components with
no switching costs.
• The business can still benefit from floating rates falling
between pricing periods.
• The business can make early repayments of principal without
incurring the Economic Cost that may be incurred in early
repayment of principal for other components (if one business
day’s notice is provided).
Disadvantages
• There is no maximum interest rate established for the term of
this component. Therefore, the business may be disadvantaged
by floating rate increases between pricing periods.
Floating Rate Component
Months
Higher
Interest
Rates
Lower
Interest
Rates
Component Interest Rate Variable Rate Rate Charged
Description
A component with a fixed interest rate that applies for the
term of that component.
Applications
This may suit a business that wishes to fix their funding cost
for the term of the component and therefore have known
funding costs for the amount borrowed.
Advantages
• This component protects the business from the direct
impact of any increase in interest rates, for the term of
that component.
• The business can structure the principal drawdown and
repayment structure (determined at the outset) to suit
their cash flow forecast (subject to credit approval).
Disadvantages
• The business will not receive any direct benefit if interest
rates fall during the term of this component.
• The contracted terms of the component are fixed at the
outset therefore any alterations to the amount drawn down
or any other term, including early repayment in full or in
part, may incur significant Economic Costs.
Fixed Rate Component
Months
Higher
Interest
Rates
Lower
Interest
Rates
Fixed
Rate
Component Interest Rate
Variable Rate Rate Charged
5
FLEXIBLE MATURITY
FIXED RATE COMPONENT
Description
The Flexible Maturity Fixed Rate component is a variation of
the Fixed Rate component. The interest rate is fixed for the
term of the component. At least two business days’ before
maturity of the component, the business has the right, but not
the obligation, to extend the term of the component at the
existing fixed interest rate for an additional pre-agreed term.
The fixed interest rate is higher than for a non- extendable
Fixed Rate component with the same expiry date and loan
term.
The right to extend the fixed rate applies only for a
predetermined term, and is a ‘once only’ right. The principal
repayment structure during both the initial component term
and the extended component term can be structured at the
outset to suit the business’s cash flow forecasts.
For each pricing period of the initial component term, the
applicable interest rate will be:
• The fixed interest rate for the Flexible Maturity Fixed Rate
component.
Providing you give at least two business days’ written notice
before initial component term expiry, you may elect to:
• Extend the component term. In this case the applicable fixed
rate will continue for each pricing period of the extended
component term, or
• Terminate the component, in whole or in part without
paying any Economic Cost. A business may choose to do this
if its funding requirement has been reduced or cleared, or a
more favourable interest rate can be achieved by moving to
a new Floating or Fixed Rate component.
Applications
This may suit a business:
• That is not definite about the timing of funding
requirements and would like to have protection against
interest rate rises in the future without committing to
a fixed interest rate for the whole (initial and extended)
component term.
Advantages
• The component establishes a known funding cost for a
predetermined amount and protects the business against
a rise in interest rates for either the initial component
term and if applicable, the extended component term if
the extended period fixed rate option is exercised by the
business.
• If floating interest rates fall, or are expected to fall, below
the fixed interest rate and are expected to remain lower by
the business, the business may elect to let their option lapse
on maturity of the initial component term.
• If the interest rate applicable to a new Fixed Rate
component at the expiry of the initial component term is
less than the existing fixed interest rate, the business may
repay the component on the initial maturity date and apply
for a new Fixed Rate component at the lower interest rate.
• Termination of this component at expiry of the initial term
(in whole or in part) does not incur Economic Cost.
Disadvantages
• The business pays for the flexibility of an extendable
maturity date by accepting a higher interest rate than
for a Fixed Rate component with a similar maturity
to the extendable term.
• The business will not receive any direct benefit if interest
rates fall during the term of this component.
• The contracted terms of the component, including the
period for which the component may be extended, are fixed
at the outset, therefore any alterations to the amount drawn
down or any other term, including early repayment in full or
in part, may incur significant Economic Costs.
Flexible Maturity Fixed Rate Component
Months
Higher
Interest
Rates
Fixed
Rate
Lower
Interest
Rates
Component Interest Rate Variable Rate Rate Charged
Original Term
Decision Time
Extension Term
CAP RATE COMPONENT ECONOMIC COST/BENEFIT
Description
A floating interest rate term component that incorporates an
agreed maximum interest rate (the ‘Cap’). The Cap provides a
maximum known funding cost for the term of the component.
For each pricing period, the interest rate applied for the
component will be:
• The lower of the Cap and the applicable floating rate.
The business pays a premium for the Cap which is payable
either in advance as a single payment, or as regular payments
on a pre-agreed schedule.
Applications
This component may suit a business that is seeking protection
against the direct impact of interest rates rising above the Cap
but also wishes to benefit from being able to achieve interest
rates below the Cap.
Advantages
• A maximum interest rate is established for the term
of the component.
• The business can still benefit from floating rates being
below the Cap on the first day of any pricing period.
• The business can make early repayments of principal without
incurring the Economic Cost that may be incurred in early
repayment of principal for other components (providing one
business day’s prior written notice is provided).
Disadvantages
• A premium is payable for receiving the benefit of having
a known maximum interest rate.
• If the component is repaid ahead of the agreed schedule,
in whole or in part, then any unpaid premiums will still
be payable.
Cap Rate Component
Months
Higher
Interest
Rates
Cap
Rate
Lower
Interest
Rates
Component Interest Rate Rate ChargedVariable Rate
If a Business Markets Loan Fixed Rate component or a Flexible
Maturity Fixed Rate component is terminated early for any
reason, in whole or in part before the end of the component
maturity date, or is repriced, cancelled or reduced before the
component maturity date, is not fully drawn or the borrower
defaults, NAB may incur a cost or receive a benefit; known as
an Economic Cost or Economic Benefit, under any equal or
opposite contracts it has entered into in wholesale interest
rate markets. This is standard industry practice.
The Economic Cost represents NAB’s costs and losses,
including by reason of the liquidation of deposits or other
funds, or the termination or reversing of any swap or option
agreement or other agreement or arrangement entered
into by NAB to fund or maintain the facility component or to
hedge, fix or limit NAB’s effective cost of funding in relation
to a Facility.
An Economic Cost occurs when the current interest rate at the
time it is payable is lower than the contracted Fixed Rate.
You will be liable to pay NAB any Economic Cost and you will
receive from NAB any Economic Benefit. Any cost or benefit
will be adjusted to recompense NAB for any transaction or
other costs it incurs.
Economic Costs can be significant and will increase the
amount you owe NAB. The calculation of Economic Cost or
Benefits will depend on the type of Business Markets Loan
component you have entered into and the prevailing interest
rate market conditions. You can get an estimate of applicable
Economic Costs at any time by contacting your Relationship
Manager or Markets Specialist.
Early Termination of Fixed Rate and Flexible
Maturity Fixed Rate Components
The Economic Cost or Benefit is calculated by:
• Determining the difference between the rate applicable
under your fixed rate component and the most applicable
interest rate NAB is able to receive in the interest rate
market at the time of termination for the remaining term
of the component. This difference is then multiplied by the
remaining amount under the component and the remaining
term. Generally, the longer the term to maturity the greater
the Economic Cost or Benefit, and
• This amount is then discounted using the discount rate
determined by NAB, to arrive at a present value.
PREMIUM
Examples
A customer enters into a $1 million five year interest only
Fixed Rate component at .0% per annum. After three years
the customer informs their Relationship Banker that they
wish to repay this Fixed Rate component in full. The two year
interest rate is the relevant rate in this case because the Fixed
Rate component has two years remaining to maturity.
Scenario 1
The two year Interest Rate is 5.50%. Because this rate is lower
than the fixed rate of .0% an Economic Cost applies. This is
calculated as follows:
.0% - 5.50% x $1,000,000 x Years
= 0.0% x $1,000,000 x
= $,000 x
= $1,000
The Bank then calculates today’s value of the economic cost by
discounting this sum to the net present value using the year
interest rate at that date. The present value of this amount
is $1,1. This amount is to be paid by the customer at the
point of repayment of the component.
Scenario 2
The two year Interest Rate is 6.70%. Because this rate
is higher than the fixed rate of .0% an Economic Benefit
applies. This is calculated as follows:
.0% - .0% x $1,000,000 x Years
= 0.50% x $1,000,000 x
= $5,000 x
= $10,000
After discounting this sum by the year interest rate at that
date, the present value of this amount is $8,89. This will
be paid to the customer at the point of repayment of the
component.
You can choose to early terminate a Cap Rate component
on any banking day, provided that you give NAB at least
1 banking day’s notice. However you will be liable for all
future premiums, if payable by instalments.
Payments that are still required as a result of terminating
the Cap Rate component are calculated by determining
the present value of all future premiums outstanding under
the facilities and netted against the market value of the
Cap Rate component.
Important information
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been prepared for dissemination to business clients for information purposes only and any statements as to past performance do not represent future performance. The
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to be accurate. In all cases, anyone proposing to rely on or use the Information should independently verify and check the accuracy, completeness, reliability and suitability
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