The Real Cost of Cheap Money
Subsidised credit, covenants and what the low rate charges elsewhere
The thesis
The subsidised rate carries obligations that do not appear in the cost of capital spreadsheet: restrictions on use, performance obligations, reporting requirements and exposure to oversight for years after disbursement
What the study establishes
1
The total cost includes the team's time devoted to reporting obligations, which is rarely budgeted
2
The collateral required often exceeds that of an equivalent market facility
3
Failure to meet a counterpart obligation turns subsidy into expensive debt, with retroactive effect
Contents
- What subsidised credit is
- The available facilities
- The counterpart obligations
- The total cost
- Reporting obligations
- The risk of reversal
- When it is worth it
- The mandate