Got a business overdraft? Ever seen the word "hardcore" on your statement?

nemo183

I wonder just how many people who have business overdrafts are familiar with the term "hardcore"?

I was dumb struck when it was explained to me that if, say, I had a £100,000 overdraft facility (with my home as security), if I was constantly making use of all or part of this, my interest rate on the overdraft would massively increase as it was now "hardcore" debt, whereas the interest rate quoted to me on the original overdraft was contingent on my account swinging between being in credit and overdrawn?

Despite having made any number of such arrangements over the years, never ever has my bank manager mentioned what seems to be common practice.

Is it just me that didn't understand this cosy stitch up?

Emmzi

I've never seen it used to vary interest rates, but I *have* seen the 'hardcore' element very commonly switched to a structured repayment loan. Yes, it hurts what you can take out as a wage, but it increases the value of your business and means your home is less at risk.

Mark7799

Out of curiosity, who actually explained this idea to you?

jonesMUFCforever

I've seen it used by business managers when it comes to negotiating new loans/overdrafts on business accounts although I've never seen it on a customer's statement.
The key word is NEGOTIATE.
If the business is profitable then any bank will want your business and your existing bank won't want to lose you if you are profitable to them!

Debt_Free_Chick

nemo183 wrote:

I wonder just how many people who have business overdrafts are familiar with the term "hardcore"?

I was dumb struck when it was explained to me that if, say, I had a £100,000 overdraft facility (with my home as security), if I was constantly making use of all or part of this, my interest rate on the overdraft would massively increase as it was now "hardcore" debt, whereas the interest rate quoted to me on the original overdraft was contingent on my account swinging between being in credit and overdrawn?

Never seen the expression, but the explanation seems entirely reasonable. If you're running an almost permanent OD of £100 then you are £100k in debt and need to address it. If you were addressing it, then the OD would be reducing and not constantly running at the same amount.

An OD is intended to be a temporary loan e.g. to fund purchase of stock whilst waiting for payment of outstanding invoices.

nemo183

Debt_Free_Chick wrote:

Never seen the expression, but the explanation seems entirely reasonable. If you're running an almost permanent OD of £100 then you are £100k in debt and need to address it. If you were addressing it, then the OD would be reducing and not constantly running at the same amount.

An OD is intended to be a temporary loan e.g. to fund purchase of stock whilst waiting for payment of outstanding invoices.

This rather depends on the kind of business you are running. Suppose my company supplies temporary workers, and is both well run and profitable. I only deal with blue chip companies (banks) and have a very low rate of default on my invoices. Suppose I am also prudent and keep profits within the company in order to help finance growth.

In this case, if I have limited working capital, a sign that my business is doing well is my need to utilise my overdraft facility to it's utmost because I need to pay my workers weekly whilst being paid every 45 days by my suppliers.

Before signing up to my (full secured) overdraft facility I have explained all this to my bank manager. Whilst he pretends to be most interested in me and my business, he also has access to his banks historical database of companies like mine and knows that my kind of business is a very sound venture. Before signing up to my overdraft I have considered financing my cash requirement via either factoring or invoice discounting, both of which services my bank can provide.

However, my manager would not benefit from either of these options, and is very keen to offer the facility, knowing how I intend to use it.

So, going back to the issue of "Hardcore", which my manager has been too polite to mention, just exactly at what point and in what circumstances could it be applied?

Well, I don't have a clue - do you?