Glossary
Basis points
Hundredths of a percentage point. A hundred basis points is one percent, and margins are quoted in them.
In plain English
One basis point is 0.01%. Twenty-five basis points is a quarter of a percent. The unit exists because saying a margin moved 0.25% invites confusion about whether that is a quarter of a point or a quarter of the rate, and on a large facility that ambiguity is expensive.
You will meet it most often in a margin: a facility priced at a benchmark plus 250 basis points is priced at that benchmark plus 2.5%. Term sheets and pricing discussions use the unit almost exclusively, so it is worth being fluent in it before you are in the conversation.
Why a lender cares
Margin is where most of the negotiation actually happens, because the benchmark underneath it is not the lender's to move. On a $2m facility, 25 basis points is $5,000 a year, which is worth asking about and is rarely worth taking a materially worse covenant package to get.
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