How many of us, once we’ve put a loan/mortgage in place, just keep paying the loan off, (unless it’s interest only – but read on, this applies to you too!), and think no more of it. Sometimes we never revisit these arrangements to check whether they are as good as we first thought.
It’s not always safe to assume your bank is giving you the best deal it can. Often your banking arrangements are built up over time. A loan for this piece of equipment, another loan a few years later for more equipment, an overdraft facility … you get the picture.
How many different assets secure these loans? Maybe you’ve given an unlimited personal guarantee, or the bank has just taken wholesale security – “all present and future assets”. Wow – that covers a lot! Before you know it the bank holds $1,500,000 security for a total of $250,000 loans!
Are your loans flexible enough to work for you and your business? Are you hamstrung by the way they are set up? Are they working AGAINST your business rather than FOR your business? Sometimes circumstances change and what worked before doesn’t work now.
Then there’s the interest question. Just how much interest are you paying and is there a better way to structure your loans to keep interest to a minimum? One thing’s for sure – it’s unlikely your banker is going to come knocking on your door to offer you a better deal!
Don’t get complacent about your financial arrangements. If they’re not working for you, or you’re not sure, it’s worth checking out some different options. Renegotiating with your bank can lead to huge benefits for you and your company.
This client found a new bank instead of renegotiating with his old one!
Max had a good relationship with his bank. He had been banking with the same bank for 23 years, and they usually agreed to whatever loans he wanted. Max needed another $180,000 to replace plant and equipment. The bank was happy to loan him the money at 12.5% interest (which appeared to be standard industry rates at the time).
A finance salesman from another bank had a look at the situation and realised –
- Max’s company had around $800,000 owing on plant and equipment at various rates ranging from 11% to 14.25%.
- A facility fee had been charged for each loan and the bank held security over the specific pieces of equipment.
- The bank had collateral security over the company’s land and buildings worth an estimated $6,000,000, with no mortgage on it.
The new bank –
- Loaned Max the $800,000 plus the $180,000 for the new equipment.
- Set up a credit line of another $1,000,000 Max could draw down any time with no documentation fee.
- Set the interest rate at 6.95% for the entire amount, because they secured it over the land.
Max understands now that the old bank was not on his side at all – they were on their own side!
If you’d like help renegotiating with your bank, or just what to find out more