If your company needs to account for leases under FRS 102, choosing the right discount rate for lease liabilities is a key step in ensuring accurate and compliant financial reporting. One of the most practical and widely accepted methods is to calculate the Obtainable Borrowing Rate (OBR) by adding a credit spread to a risk-free base rate — especially when the rate implicit in the lease is not available, which is often the case.
In this guide, we explain a clear, auditor-friendly approach to estimating the OBR, even if your company does not have a public credit rating. At Rubli, we simplify the process by providing an up-to-date UK swap rate curve and helping you estimate your company’s credit spread. Together, these inputs make it easy to calculate a compliant, consistent discount rate for your lease liabilities.
What is the FRS 102 Lessee Obtainable Borrowing Rate?
Under FRS 102 Section 20, the OBR is the interest rate a lessee would have to pay to borrow— over a similar term and with similar security — the funds needed to purchase a comparable asset in a similar economic environment.
When the implicit rate in the lease is unavailable, FRS 102 requires you to estimate this rate using observable borrowing conditions. That’s why using a spread over the swap rate is often the most practical and defensible approach.
When calculating the borrower’s discount rate under FRS 102, using the swap curve instead of government bonds has significant advantages. While many systems use gilt yields, our platform uses the UK swap curve for these reasons:
Why Use the Swap Curve Instead of Government Bonds?
- Reflects what corporates actually pay in the market.
- Is based on interbank lending, making it closer to commercial lending costs.
- Covers a broader range of maturities and avoids government policy distortion.
- Is widely accepted by auditors and reporting professionals.
How Rubli Calculates the FRS 102 Borrowing Rate
OBR = Swap Rate (for lease term) + Credit Spread (estimated)
Our platform handles the technical work for you:
- Maintaining an up-to-date UK swap curve
- Interpolating rates for your specific lease terms
- Guiding you to estimate your credit spread
- Assuming all leases are secured, which reduces the spread
Step 1: The UK Swap Curve — We Handle This for You
Our platform automatically updates the swap curve each month, covering tenors up to 30 years.
This provides a reliable foundation for calculating your FRS 102 lease discount rate — no manual data sourcing required.
Step 2: Estimate Your Company’s Credit Spread
If you don’t have a public credit rating, no problem.
There’s no one-size-fits-all approach — so we support two practical ways to estimate your company’s credit spread:
Option A: Use a Bank Loan Quote (Recommended)
Ask your bank for a rate they’d offer for a secured loan of a similar term and amount.
Credit Spread = Bank Loan Rate − Swap Rate
Example:
Bank Loan Rate (5 years): 5.8%
Swap Rate (5 years): 3.2%
Estimated Credit Spread: 2.6%
Use this spread across other maturities by adding it to the respective swap rate.
When using Rubli you simply enter the rate provided by the bank and we’ll calculate the spread automatically.
Option B: Estimate from Financial Ratios (No Bank Data)
If you don’t have a recent loan quote, you can estimate your credit spread based on three financial ratios. We compare your ratios to industry benchmarks and match them to a typical credit rating. Here’s how it works:
Key Ratios We Look At:
- Interest Coverage Ratio = EBIT / Interest
Indicates how easily your company can service debt. - Debt-to-Equity Ratio = Total Debt / Equity
Shows how leveraged your business is. - EBITDA Margin = EBITDA / Revenue
Reflects your profitability cushion.
Example Rating Benchmarks:
We compare these to industry norms to suggest an implied credit rating, and then apply a typical spread:
| Rating | Interest Coverage | Debt/Equity | EBITDA Margin | Spread |
| AA | More than 8x | Less 0.5 | More than 25% | 1.0% |
| A | 4 – 8x | 0.5 – 1.0 | 20 – 25% | 1.5% |
| BBB | 2 – 4x | 1.0 – 2.0 | 15 – 20% | 2.0% |
| BB | 1 – 2x | 2.0 – 3.0 | 10 – 15% | 3.0% |
| B | Less than 1x | More than 3.0 | Less than 10% | 5.0% |
Step 3: Your Borrowing Rate — Done for You
Once you’ve estimated your credit spread, we combine it with the corresponding swap rate to produce your final borrowing rate — your Obtainable Borrowing Rate (OBR).
Example:
Lease Term: 7 years
Swap Rate (7-year): 3.4%
Credit Spread: 2.6% (From step 2)
Calculated OBR: 6.0%
When you capture lease terms we automatically calculate this rate to discount your lease liabilities — ensuring full compliance with FRS 102 lease accounting and no need for any manual data entry.
Step 4: Fix the Spread, Update the Curve
To ensure consistency while reflecting market conditions, we recommend a simple two-part approach:
- Fix your credit spread for 12–24 months (unless your risk profile changes)
- Let us update the swap curve monthly
This gives you the benefit of market-based rates — without the hassle of recalculating your credit spread every month.
Step 5: Full Transparency and Audit Trail
Every calculation in our system is fully documented and audit-ready — giving you complete confidence in your lease accounting compliance. For every OBR our system generates, we provide:
- The exact swap rate used (date-stamped and sourced)
- Your selected or estimated credit spread
- Final borrowing rate
- A downloadable audit pack with all supporting data
Conclusion: A Reliable and Efficient Way to Estimate OBR Under FRS 102
Rubli’s approach to estimating the Obtainable Borrowing Rate (OBR) under FRS 102 is not just accurate — it’s efficient, transparent, and tailored for real-world use. With our system:
- You don’t need to source financial data manually
- You don’t need a public credit rating
- You get full FRS 102 compliance, backed by transparent methodology
Whether you’re a small business or a growing group, this approach gives you a defensible, consistent method to value lease liabilities.
Want to simplify lease discounting under FRS 102?
Book a demo or Contact us to see Rubli in action — and discover just how easy audit-ready lease accounting can be.
