The pitfalls of having all your debt in one basket

In Commericial, debt structuring by Rachael Trembath

The government is backing small businesses, they say small and medium businesses are driving jobs growth in Australia and must continue to do so.  But while the government has your back, big banks are just out for themselves.

It is common for small business is to have all their debt and assets with the one bank, is this a good or bad thing? The short answer is NO! But don’t take our word for it and certainly don’t take the banks! Lets have a look at some Pros and Cons.

Pros – one bank solution
·      Only one point of contact for your finances
·      Don’t have to think about the options in the market
·      Bank manager will take care of my business

Cons – one bank solution
·      Bank has complete control over all your assets
·      Bank managers often change, and you have no control over this
·      Bank policies are subject to regular change
·      Bank manager typically doesn’t have the ability to approve loans. That rests with a credit manager in the background so you’re not dealing with a decision maker anyway.

What isn’t my bank telling me?
What is Cross Collateralisation?
Simply, this is the bank linking your collateral so they have choice on how they recover their position if your loans go bad. It gives the bank complete control over your assets and more importantly the equity contained in those assets. This is great for the bank, not so great for you.

Funding Restrictions.
So when the bank says no, and you really need the money to benefit the business or your personal wealth, what then? You have to refinance everything to another bank right? Well instead of jumping from one frying pan into another, now is the time to assess your options. Why put everything with one bank to have history repeat itself. There must be a better way, and there is.

Let’s start with flexibility, by splitting your security and separating your debt to different funders, you are diversifying your risks. You have control over your assets and the equity that underpins your wealth. If you want to sell an asset and keep the equity, typically you can.

If the bank says no to a loan, you don’t have to refinance all your debt, but rather only the part that requires your attention.

This is a far easier and faster prospect than moving everything, including bank accounts and all the administration issues that entails. If your business performance deteriorates and the bank asks you to move, you only need to move the facilities with that bank and the rest of your structure can remain the same.

So How Do I Learn More?

We work for you, not the banks. So the advice and options we provide you are designed to benefit you, not the bank. Sure we have to work with them, after all they have the money and we need some of it. But they don’t need complete control and often take more security than is needed.

That’s where we are different. We will put options on the table you simply won’t get from your bank. After all they are there to look

after their interests first, we are here to look after yours. Our team of experts can provide you with quick and reliable feedback. All it takes is a quick discussion on the phone.

You know your business better than we do. Our job is to create finance solutions that help you achieve your business objectives with maximum advantage to you.

If you would like to speak with one of our finance specialists visit our contact page or contact us directly 03 9393 9600