Why SARON changes the way SMEs finance their business
Following the discontinuation of CHF LIBOR, variable-rate business loans and credit facilities in Switzerland now predominantly reference SARON (Swiss Average Rate Overnight). For an SME financing investments, inventory or property, this means the cost of debt is no longer fixed for the entire term of the contract, but adjusts to money market conditions.
This flexibility can translate into savings when rates fall, but it introduces uncertainty into the budget, cash flow forecasts and income statement. Sound accounting management therefore requires understanding the calculation mechanism, the bank contract clauses and the periodic recording of interest.
This guide covers the essentials for business owners, administrative managers and trustees: from how SARON works to the accounting of financial charges, with reference to Swiss accounting practices and internal reporting requirements.
What SARON is and how it applies to business loans
SARON is an overnight rate on the secured Swiss repo market, calculated and published by SIX Index AG based on actual transactions. Unlike the former LIBOR, it is not based on bank estimates but on verifiable market data. For term commercial credit, banks typically use SARON Compound — obtained by compounding SARON over the agreed observation period — as well as derived variants (futures or swaps) as the reference index.
In a SARON-indexed business loan, the effective interest rate comprises two elements: the SARON index (or the derived rate for the agreed term, e.g. 3 or 6 months) and a fixed bank margin, expressed in percentage points. The typical formula is: client rate = SARON + margin. The margin reflects the company's risk profile, the collateral provided and the relationship with the lending institution.
Banks adjust the rate at regular intervals — often quarterly or semi-annually — based on the index value on the reset date. It is essential to distinguish between a «pure» variable-rate loan and a contract with an option to convert to a fixed rate: the accounting and treasury implications differ significantly.
Terms to verify in the contract
- Exact reference index (SARON Compound, reset tenor)
- Margin applied and any management fees
- Floor (minimum rate) and cap (maximum rate), if applicable
- Notice period in the event of a rate change
- Penalties for early repayment or conversion to a fixed rate
SARON variable rate vs fixed rate
Before signing or renewing financing, it is worth comparing the two most common structures for Swiss SMEs:
| Criterion | Variable rate (SARON) | Fixed rate |
|---|---|---|
| Cost predictability | Low — varies at each index reset | High — unchanged for the entire agreed term |
| Initial cost | Often lower at the time of signing | Generally higher, includes a rate risk premium |
| Rising rate risk | Borne by the company — direct impact on margins and liquidity | Transferred to the bank at the time of signing |
| Suitable if... | Short to medium term, ability to absorb fluctuations, active monitoring | Multi-year planning, investments with stable returns, low risk tolerance |
| Accounting | Interest accrued in the period — adjustment at rate reset and accruals at year-end | Interest known ex ante — straight-line recording except for accruals |
| Early repayment | Variable penalties — verify clause in the contract | Often higher penalties (bank compensation) |
Impact on financial costs and the company budget
A SARON loan affects more line items in the income statement and treasury budget than may appear at first glance:
Income statement
Interest expense is recorded under «Financial charges» or «Interest expense». With a variable rate, the annual amount is not known at the time the budget is approved: it is advisable to model at least three scenarios (base rate, +1 percentage point, −1 percentage point) and update forecasts at each index reset.
A 100 basis point increase on an outstanding debt of CHF 500'000 results in approximately CHF 5'000 in additional financial charges per year — a figure that directly affects EBITDA and, in turn, income tax.
Treasury budget
Principal amortisation instalments generally remain predictable, but the interest portion varies. Including an «estimated interest» column in the liquidity plan, updated quarterly, reduces the risk of unintentional overdraft.
Software such as Accountex allows you to link bank due dates, amortisation schedules and financial charge forecasts, making it easier to compare budget and actual figures without separate spreadsheets.
Simplified numerical example
A GmbH with an outstanding loan of CHF 800'000, a bank margin of 1.2% and SARON at 1.0% on the reset date pays an effective rate of 2.2% per annum, equivalent to CHF 17'600 in interest. If at the next reset SARON rises to 1.75%, the effective rate becomes 2.95% and annual interest increases to CHF 23'600 — a 34% increase not accompanied by higher revenue. This effect should be made explicit in internal reporting to management.
Accounting in compliance with Swiss standards
Under Swiss accounting standards (Swiss Code of Obligations, Art. 957 et seq., and Swiss GAAP FER), business loans are classified as long-term financial liabilities if the maturity exceeds 12 months. The outstanding principal is recorded on the liabilities side; interest accrued in the accounting period is recorded separately as a financial charge.
For a variable-rate loan, accounting follows the accrual principle: interest for the period must be charged to the income statement regardless of the actual payment date. If the bank debits interest quarterly but the accounting period is annual, interest accrued but not yet invoiced is recognised at 31 December through accrued liabilities (account 2300 or equivalent in the chart of accounts).
| Transaction | Debit account | Credit account | Indicative amount |
|---|---|---|---|
| Loan disbursement | 1020 Bank | 2400 Bank loans | CHF 500'000 |
| Monthly instalment (principal + interest) | 2400 Loans / 6900 Interest | 1020 Bank | CHF 4'200 (approx.) |
| Interest accrual at 31.12 | 6900 Interest expense | 2300 Accrued liabilities | CHF 1'100 (approx.) |
| Accrual reversal at start of period | 2300 Accrued liabilities | 6900 Interest expense | CHF 1'100 |
Arrangement fees and guarantee costs (pledge, security transfer of registered movable assets) may be capitalised or expensed depending on materiality and company practice. In all cases, document in the investment and financing register the signing date, initial rate, margin, reset frequency and remaining amortisation.
The accounting of derivatives for interest rate hedging (interest rate swap) falls within a more complex area and normally requires the support of a qualified trustee or auditor. SMEs that do not use hedging instruments record the full effect of rate changes directly in the income statement.
Covenants, collateral and reporting to the auditor
Business credit contracts in Switzerland frequently contain financial covenants: leverage ratio (debt/EBITDA), interest coverage (EBITDA/interest) or minimum net equity. A SARON increase that erodes EBITDA can bring the company closer to contractual thresholds, with the risk of additional costs or a review of conditions by the bank.
It is good practice to calculate covenant compliance quarterly using the current effective rate and promptly report any breaches to the tax advisor and auditor. In the case of opting out of limited audit (Art. 727a CO, for companies not subject to ordinary audit that do not exceed 10 FTE on an annual average and obtain unanimous shareholder consent, following registration in the commercial register before the start of the financial year), orderly internal documentation of financing partially replaces external controls, without however eliminating the obligation to maintain proper accounting records.
- 1.File every rate adjustment letter sent by the bank with the date and new rate applied.
- 2.Update the amortisation schedule if the instalment amount or principal/interest split changes.
- 3.Include an explanatory note on interest rate sensitivity in the internal financial report.
Tax aspects: deductibility of interest
For federal direct tax on profit and cantonal and municipal tax purposes, interest on commercial debt is in principle deductible if the financing is related to business activity and properly documented. There is no tax distinction between interest from fixed-rate or variable-rate loans: what matters is the amount recorded in the accounts for the period.
Pay attention to the rules on hidden equity (Art. 65 and 75 DBG [Direct Federal Tax Act], FTA Circular No. 6 and analogous cantonal provisions): for financing from shareholders, partners or related parties that exceed the permissible debt thresholds per asset category, interest on the excess portion is not deductible and may be reclassified as a hidden profit distribution. SMEs with intragroup financing or shareholder-guaranteed loans should monitor these thresholds with their tax advisor.
Withholding tax (Verrechnungssteuer) generally does not apply to interest on loans contracted with Swiss banks, but may apply to interest paid to foreign counterparties — in particular group companies or bond loans — unless exemptions provided by law or double taxation treaties apply.
Interest rate risk management strategies
Without resorting to complex derivatives, an SME can adopt operational measures to limit SARON exposure:
Margin renegotiation
With a history of regular payments and solid equity, it is possible to request a reduction in the bank margin, mitigating the impact of index increases.
Accelerated amortisation
Voluntary principal payments reduce future exposure: a lower outstanding debt means lower absolute interest at the same rate.
Liquidity reserve
Maintaining a cash buffer equivalent to 3–6 months of interest and instalments protects against sudden SARON fluctuations.
Operational checklist for business owners and trustees
| Action | Frequency | Responsible |
|---|---|---|
| Verify the SARON rate applied and compare it with the bank notification | At each reset | Administration / Treasury |
| Update interest budget and sensitivity scenarios | Quarterly | Management / Accounting |
| Record interest accruals and reversals at year-end/start of period | Annually | Accounting / Trustee |
| Check financial covenants (debt/EBITDA, interest coverage) | Quarterly | CFO / Trustee |
| Document in the loan file: contract, collateral, amortisation schedule | At signing and upon each amendment | Administration |
| Assess tax deductibility and thin capitalisation rules | Annually | Tax advisor |
A SARON-indexed loan is not inherently advantageous or risky: it depends on rate trends, contract structure and the company's ability to absorb changes in financial costs. Integrating monitoring, accounting and planning into a single management workflow — as required by good administrative practice and facilitated by modern accounting tools — enables the Swiss SME to maintain control over costs, budget and regulatory compliance.