Interest rates affect nearly every business decision—from expansion plans to asset acquisition to operational budgeting. Yet many borrowers remain exposed to interest rate fluctuations through variable-rate financing, accepting uncertainty as the cost of doing business. It doesn't have to be that way. 

Fixing your interest rate operates much like buying an insurance policy. While a fixed rate may not always deliver the lowest initial borrowing cost, it provides something increasingly valuable in volatile markets: payment certainty. For business owners and executives managing cash flow, planning long-term investments and maintaining predictable operating costs, this stability can justify the trade-off.

The challenge is understanding which tools fit your financial situation. One underutilized option that deserves consideration is an interest rate swap—a straightforward mechanism that can lock in favorable financing terms while preserving flexibility. 

Why Interest Rate Certainty Matters 

Interest rate volatility creates real challenges for business planning, regardless of industry. Whether you're managing commercial real estate, manufacturing operations or another sector, unexpected rate increases directly impact profitability and constrain budgets. 

Most commercial loans carry floating rates tied to benchmarks like SOFR (the Secured Overnight Financing Rate, a benchmark interest rate for U.S. dollar derivatives and loans, reflecting overnight borrowing costs) or prime, meaning your monthly financing costs move with market conditions. This unpredictability makes strategic planning difficult. How do you project five-year returns when your debt service costs could swing with different degrees of variability? How do you model cash flow when your largest fixed expense isn't actually fixed? 

A fixed rate eliminates this ambiguity. For borrowers financing long-term assets—multifamily properties, hotels, shopping centers and other commercial real estate—this certainty becomes especially valuable. The same principle applies to non-real estate situations where business volatility or uncertainty around future cash flows makes budgeting difficult. 

Understanding Interest Rate Swaps 

An interest rate swap is a financial agreement in which you exchange your floating rate for a fixed rate (or vice versa) for a defined period. Your lender continues under the original loan terms, but the swap effectively changes what you pay. 

Think of it this way: the underlying loan structure remains unchanged, but you've hedged your interest rate risk. This is particularly useful because it provides fixed-rate certainty without refinancing—no appraisals, no new underwriting, no closing costs. You maintain your existing loan relationship while gaining payment predictability. 

Key Benefits for Business Planning: Cash Flow Management 

Predictable financing costs are foundational to sound business management. When you know exactly what you'll pay toward debt service, budgeting becomes more precise rather than approximate. This helps to enable: 

• Strategic business planning based on more precise and reliable cost assumptions 
• More accurate cash flow projections aligned with your business cycle and seasonal variations 
• More informed long-term investment decisions when you understand true total-of-ownership costs 
• Greater overall flexibility to redeploy capital toward growth initiatives rather than financing cost increases 

Timing matters significantly here. Rather than committing your entire loan term to a fixed rate, many borrowers strategically fix only a portion of their floating rate risk or choose a swap duration shorter than the full loan term. This approach balances certainty with the flexibility to benefit from potential rate declines later. 

Construction-to-Permanent Financing: A Critical Use Case 

Development and construction projects illustrate swaps' practical value clearly. These undertakings span months or years, with cash flow needs varying dramatically across phases. A construction loan, permanent loan, or construction-to-permanent financing structure involves timing risk: rates may fluctuate between loan origination and permanent financing. 

Forward-starting swaps address this challenge with a greater degree of certainty. They allow you to lock in rates today for financing that activates in the future. For a developer planning a project that breaks ground in 12 months, a forward-starting swap provides immediate visibility into future borrowing costs—eliminating uncertainty that could otherwise undermine project economics. 

For projects with extended development timelines and complex cash flow curves, this certainty becomes invaluable. By way of example, you can finalize investment decisions and attract equity partners knowing precisely what permanent financing will cost. You reduce surprise, which can complicate projects at critical junctures. 

Structuring a Strategy That Works for You 

There's no one-size-fits-all financing approach. Your fixed rate strategy depends on several factors: 

• Your business goals and strategic direction 
• Your cash flow timeline and anticipated needs 
• Your risk tolerance regarding interest rate exposure 
• Your time horizon for the asset or business phase 

A borrower with stable, predictable cash flows might accept more rate risk than a business experiencing cyclical volatility. A short-term project financing may not justify swap costs, while long-term permanent financing almost certainly does. A business planning significant growth might prioritize flexibility; one seeking stability might lock in rates for the full loan term. 

Moving Forward 

Interest rate swaps aren't out of the ordinary financial instruments—they're practical tools that can often times be overlooked by commercial borrowers. By converting variable-rate exposure into fixed-rate certainty, swaps enable you to focus on what matters most: growing your business rather than managing interest rate uncertainty. 

The right financing structure requires careful evaluation of your specific situation. Work with lenders who understand your business, timeline and objectives—and who can articulate how different interest rate strategies align with your goals. 

Whether you're refinancing, financing a new acquisition or developing a long-term project, discussing fixed rate options and financing flexibility early in your planning process matters. These conversations should happen at the outset, not as an afterthought. 

At Eastern Bank, we work closely with commercial borrowers to evaluate financing needs and structure solutions tailored to short- and long-term strategic goals. If you're managing interest rate risk, consider discussing how an interest rate swap or fixed rate strategy might provide the payment certainty your business needs to plan confidently and grow strategically. To learn more, contact a banker. 

The opinions expressed herein are those of the authors and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice. These views and opinions should not be construed as any specific recommendation. This material is for your private information and we are not soliciting any action based on it. The information in this content has been obtained from sources believed to be reliable but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information.

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