Dodgy Bank Tactic on Business Loan?

EightImmortals on 24/05/2021 - 07:11
Last edited 24/05/2021 - 11:22 by 1 other user

I have a friend who has a business loan with a certain Aussie bank since 2013, they have never defaulted on a payment and have even kept payments up during the covid crisis when loan payments were put on hold. In that time she has paid down about half of the loan with let's say 100k left on the loan. At the same bank she has a 120K term deposit for which the bank holds as 'security' over the business loan. She also has a mortgage with the same bank and has never missed a payment on that either. SO the other day she gets a call from the bank manager saying they want to revisit the terms of the contract and that they want to grab her house as more security over the business loan and that she needs to 'come in for a meeting' in a couple of days.

My first reaction was WTF they can't change the terms of the contract for no reason? Is this just the banksters being greedy? Do they know something bad is coming and are trying to grab as many people's assets as they can before it does?

I'm not after advice here but just curious if anyone else has heard of dodgy dealings going on ATM?

(Have advised friend to a) Talk to her solicitor b) Cancel the meeting and tell the bankster she will only deal with them through written correspondence and c) if she does go in for the meeting to record the whole thing on her phone. )

Cheers

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  RockyRaccoon on 24/05/2021 - 07:49

  Banks have always made it hard for small business, and are ruthless in making sure they get their money back.

  Home mortgages are far more regulated, whereas business loans are not.

  To answer one of your queries read this as it expains the banks thoughts on is a bad time coming.

  https://www.accountantsdaily.com.au/sponsored-features/15398…

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  Ocker on 24/05/2021 - 08:14

  +1

  Perhaps not really smart advice you have given your friend.
  Most likely the bank has the ability to demand repayment of the business loan at their pleasure so if you give them a heard time they will just demand immediate repayment in full.
  That aside, your friend is probably getting around 1% on the TD and payment 5%+ on the overdraft. Not really good cash management.

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    EightImmortals on 24/05/2021 - 08:16

    My advice was for her to talk to her solicitor, what's wrong with that?
    If they do pull the loan (if they can?) then she can just pay it out with her TD.

    And then take the rest of her cash to another bank. :)

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      Ocker on 24/05/2021 - 08:19

      Nothing wrong with that at all - but why go the expense. Simply look at the loan documentation and I would be pretty certain you will find the bank can demand repayment at any time, without giving a reason.
      If they did call in the loan then would your friend be able to break the TD?

      • 

        EightImmortals on 24/05/2021 - 08:34

        Not sure. I'll catch up with her tomorrow and see how she got on.

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  Darayus on 24/05/2021 - 09:22

  +6

  Never keep loan with same bank for investment or home loan.

  Keep banks and assets separate because they can just hold on to documents & titles when one loan get defaulted.

  that's the basic advice.

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  JimmyF on 24/05/2021 - 09:36

  +3

  My first reaction was WTF they can't change the terms of the contract for no reason?

  Yes they can 'call the loan in' and ask you to enter a new loan with them. All legal.

  Do they know something bad is coming and are trying to grab as many people's assets as they can before it does?

  The 'worst' is yet to come. So many businesses piled up with debt, prices on everyday items are going up daily. Inflation is going to be mega even though the gov keeps screams its not and wage growth next to zero.

  So yeah the bank is trying to ensure the loan is covered.

  In that time she has paid down about half of the loan with let's say 100k left on the loan. At the same bank she has a 120K term deposit for which the bank holds as 'security' over the business loan

  The real question is, why don't they just pay the loan out? Interest rate on the business loan will be way higher than the term deposit rate. So she is losing money by not paying out the loan.

  • 

    EightImmortals on 24/05/2021 - 09:42

    Yeah I asked that and apparently her accountant reckons closing out the load would cost her about 30K though I didn't understand the reason why. :)

    • 

      garetz on 24/05/2021 - 10:33

      Probably tax implications.

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  netjock on 24/05/2021 - 09:48

  +1

  Use the term deposit to pay off the business loan. Refinance the home with someone else and use that as business capital.

  Your friend would probably be paying higher interest on the business loan too.

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  B00k on 25/05/2021 - 09:59

  Unlike home loans, business loans generally have short terms. This gives the bank flexibility to revisit the terms. It's likely that the business loan has expired or is now reached a pre-agreed review point.

  It is also possible that the bank's policy of Loan to Value Ratio against term deposits has changed since the loan was originated. Its stupid to think they would view cash as anything less than 100% but crazy policies happen.

  Unfortunately, (in banks eyes) never missing a loan payment gives you nutural points. While missing payments kills your customer risk ratings and leads to higher rates and makes it difficult to borrow or restructure.

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  Darayus on 25/05/2021 - 10:04

  Normally some time term deposits are locked and cannot be cashed without penalty and hence bank grant loan with 1% additional interest on term deposit.

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  EightImmortals on 25/05/2021 - 11:37

  Thanks for the replies. I'll be in touch with friend later today so will know more then.