Know What You Are In For - Understanding Loan Agreements

So you borrowed money from the bank to expand your business a few years ago, well done and good timing as things were certainly easier and cheaper back then.

But do you know what you are in for? What you are committed to?

The Car Analogy

Let's say you buy a car from Nissan (no reason why Nissan, just because..). You know whether it takes petrol or diesel, you know what it cost to buy, you know what you need to do to keep it running (tyres, oil etc). You also have a good idea when it will need replacing.

So, if Nissan were to knock on your door after three years and say you can only keep your car if you pay more money, or that because you didn't top up the oil last week then they are taking the car back, you would be pretty annoyed, right?

Break Clauses

Most bank loans over a ten year term have a break clause. These clauses have pretty much always been there, but never really used or enforced. However, they are gradually being enforced as they come up.

A break clause is the right to 'break' the loan agreement and renegotiate terms. This normally happens at a three or five year interval. If you haven't supplied the bank with everything within the agreement you may be on thin ice (think oil top ups) and the bank may increase your interest rate.

Even if you have done everything correctly, the bank may still look to improve their income.

Why Do It Now If They Never Have Before?

Simples, a few years back the market was competitive and renegotiating would normally mean the bank having to reduce their return to keep the loan. Now that is not the case and the bank wants to improve its return.

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What Do I Do?

Simples again, throw the business loan my way, I will check it, summarise it and if necessary help you prepare in advance so the bank can be seen off at the pass. Preparation here is everything.

If you do have an existing business loan agreement then please run it pass me, happy to talk it through and provide some ideas at no cost, just call me on 01293 541333 or Contact Me