‘Collar’ deals prove a noose around neck of businesses

When British businessman Colin Jones approached his local bank for a loan in 2007, he had little idea what an “interest rate swap” was, let alone a “structured collar”.

Jones wanted £400,000 (about €500,000) to buy a small hotel in north Wales and Royal Bank of Scotland said he could have the money if he also took out a swap — a form of insurance designed to protect him from a rise in interest rates.

Like a growing number of small business owners in Britain, Jones regrets signing up. His hotel was repossessed in July last year after a drop in rates during the financial crisis pushed charges on the deal to £30,000 a year, the same as the repayments on his loan.