When a credit agreement requires you to fix the rate on a floating-rate term loan, the bank that arranged the loan will usually offer to do the swap too. The quote arrives, it looks like the market, and most borrowers sign. That instinct is expensive. A lender-required swap is one of the few places in a financing where the price is set by a counterparty sitting on the other side of your trade, and where almost no borrower checks the number.
Here is what that quote actually contains.
A swap price is built from three parts. The first is the mid-market rate, the fair midpoint where the swap would trade between two dealers with no edge to either side. The second is a credit and funding charge, the bank's pricing for the risk that you default before the swap matures and for its own cost of carrying the position. The third is the bank's margin, the profit it adds on top. The mid-market rate is observable if you have the systems to see it. The credit charge is defensible but highly variable, and banks size it differently for the same borrower. The margin is discretionary, and it is the part the bank would prefer you never separate out.
Why you cannot see the markup
The problem is structural. On a lender-required swap you are usually transacting with a single counterparty, the same bank providing the loan, so there is no competing quote to reveal what the trade should cost. The all-in fixed rate is delivered as one number, with the mid, the credit charge, and the margin blended together. Without an independent benchmark at the moment of execution, there is no way to tell a fair credit charge from padding, and no leverage to push back.
The markup also hides in the documentation. The ISDA Schedule and Credit Support Annex that govern the swap are anything but standard. Collateral thresholds, ratings triggers, the events that let the bank terminate early, and the way a breakage amount is calculated all carry real economic value, and a borrower who signs the bank's first draft is usually agreeing to terms written for the bank's benefit.
How to check it
The fix is to price the swap independently before you sign. That means breaking the quote into its components, valuing the swap against an independent mid-market rate at the moment of execution, and treating the credit charge as a negotiable line item rather than a fixed cost of doing business. It means confirming, after the trade, that the rate that executed matches the rate that was agreed. And it means negotiating the ISDA terms with the same care as the loan documents, because those terms will matter if rates move or your credit changes.
None of this requires walking away from your lender. Even on a single-bank swap, where you cannot run a true competition, the credit charge and the documentation terms tend to move once the bank knows the borrower is being advised and the number is being checked. The leverage comes from transparency, not from threatening to take the trade elsewhere.
What is it worth? On a single execution the difference is often several basis points on the all-in rate. On a multi-year swap covering a large notional, several basis points is real money returned to the deal, year after year, for the life of the hedge.
Where an independent advisor fits
This is the core of what an independent advisor does. We sit only on your side, benchmark the bank's pricing against an independent mid, separate and negotiate the credit charge, level the ISDA documentation in your favor, and confirm at closing that the executed rate is the rate you agreed to. We do not take a position in the trade and we are not paid by the bank, so the only interest we have is getting you a fair number.
If you have a lender-required swap coming up, the time to get an independent read is before you sign, not after.