Q: My bank has asked me to repay half of my overdraft as a loan over five years. This will put me under great pressure and probably force me to close my business. Is there anything I can do to fight their decision?
Feb 03 2010
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Answered by: Clive Lewis Ask a question
You may not appreciate it, but the bank may be trying to be helpful. If your finance facility is an overdraft (many people confuse an overdraft with a loan) it is repayable on demand. The bank simply has to write you a letter stating the amount outstanding at the close of business on a particular day and ask you to make arrangements to repay it with a certain period (for example a week). So this suggestion by your bank, whilst it may sound unhelpful to you, is a much less drastic option that demanding immediate repayment which almost always results in insolvency.
So you should use the banks suggestion to buy some time to consider the alternatives. These might include looking at alternative types of finance such as:
• Factoring or invoice discounting the business’ sales invoices
• Leasing or Hire purchase of assets, even those which you already own
• Raising some equity finance (by selling a share of the business)
• Getting temporary finance from friends or family, but you must prepare a written agreement setting out the terms and conditions if you do accept a loan from a friend or family.
You might also consider different ways of managing your business such as selling some assets or reducing your working capital.
You should have a discussion with your bank about the alternative types of finance. If they have security on the assets of the business their agreement will be required to undertake these alternatives. You may also want to talk to your accountant about the implications of the banks offer.
Finally, if you feel that the position is getting desperate you may want to talk to an insolvency practitioner about alternative forms of bankruptcy or insolvency as well as whether you might be able to avoid them. You can find a chartered accountant or insolvency practitioner at: www.icaew.com/firms
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