2 min read
Definition
A rate floor is the mirror image of a cap: it sets the lowest your variable rate can go. Many facilities include a zero-floor on the reference rate, so if the benchmark turns negative you still pay the margin. Floors protect the lender’s minimum return.
In plain terms
It stops your rate falling as far as the benchmark might. In a falling-rate environment, the floor is where your saving stops.
Why it matters for your company
Check whether your facility has a floor — it caps how much a rate cut will help you. See rate cap and collar.
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Related reading
Rate cap (interest cap)
A rate cap sets a ceiling on a variable rate, so if the benchmark keeps rising, your rate stops climbing at…
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Collar (interest rate collar)
A collar combines a cap and a floor to keep a variable rate inside a fixed band, trading away the extremes in…
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Variable rate
A variable rate is an interest rate that can change over the life of a facility, typically because it tracks…
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Effective interest rate
The effective interest rate spreads all the interest and fees of a loan evenly across its life for accounting…
Read →Funding for UK limited companies
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