What Will You Do if The Bank Calls in Your Loan?

An afternoon spent with some insolvency practitioners gave Dan Rajkumar a different perspective on why banks may want to remove credit lines overnight and how business owners should guard against the possibility…

Businesses in the UK are suffering from high bank charges and are becoming increasingly nervous about commercial loans being called in by their banks, according to research from the Forum of Private Business.

They have good reason to be concerned too, as many insolvencies occur when an economy starts to recover. Sounds illogical, but not when you think about it.

Banks can see other industries experiencing growth and want to jump on the bandwagon, but could be prevented from doing so if capital is tied up in so-called stagnating industries. The solution to this is simply to call in the loan, recover what they can and employ the capital in the growth areas.

Good for the banks, but terrible for business owners who have worked thought the hardest years and started to see some light.

Arguably we are already seeing the channelling of funds on a national level…  Why would National Bank of Australia (owners of Yorkshire and Clydesdale Banks) want to invest in the UK when opportunities in the Far East are so much more lucrative?

With banks under pressure to fill the holes in balance sheets, you could expect to see high numbers of insolvencies when the recovery eventually comes, we just don’t know when this will be. With pressure to lend increasing all the time (the Funding for Lending scheme is in full swing) the only way to repair balance sheets without slowing down on new lending is to call in existing loans.

Losing your primary funding line overnight can be devastating for businesses, but it isn’t unheard of and we can expect it to be more prominent in the future.

rebuildingsociety.com believes in making it easy for businesses to repay loans when they want and has no mechanism for calling in a loan early.

Those that are proactive will take precautionary steps to protect themselves from a sudden shock before it becomes a matter of urgency.

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