Getting the business finance you need can be stressful enough and when agreed the automatic reaction is one of relief and lets get it done as quickly as possible. If you have just approached your own bank then you may be in for a surprise later down the line.
To most people a 15 year loan is a long term agreement. Providing the payments are made and there is no action of default it’s there until it’s repaid. Well think again.
We are seeing more and more existing loan agreements being used by the banks to increase interest rates, withdraw facilities, bounce items on separate accounts and arrange new valuations. Some of these reasons are valid due to changes in financial circumstances for their customers but others are not. Three clauses to watch out for;
- On demand clause- Common in overdrafts where the bank’s security fluctuates. But are also in some loan agreements. This gives the bank the right to request repayment whenever they want. This clause is not used by all the banks so you need to look at alternative funders as it weakens your position;
- Revaluation clause- Some banks are using this now as valuations have dropped to increase rates, enforce reductions or manage the loan away. Due to your circumstances this may not be possible. Some banks are more pragmatic than others when faced with this situation;
- Cross Default- If you miss a payment on a loan and you have others with the same bank then all of them can be renegotiated. Ensure that if you do miss a payment that you pay it quickly other this clause may be enforced.
If appropriate notice is given this gives the bank customer time to look for alternatives. To bank managers please take note on this point. It makes a difficult situation for both parties much easier.
Please take independent legal advice on any loan agreement and talk to an independent broker as they will know how the different banks behave.