Business overdraft switched to loan, please help.

businessuser

Hello all,

I'm new here and this is a bit long winded but I'd be grateful if you could have a read through my post and offer any advice if you can.

I took out a £10000 overdraft on my Barclays business account in July 2011. Business was going pretty well and I figured this overdraft would give the business a real boost by allowing me to increase my stock levels. The loan was guaranteed by a relative of mine who had originally gave me some of this own money to set the business up. We had to sign a Barclays contract in front of a solicitor to confirm that I was taking the loan and it was being guaranteed by my relative. Within 12 months of taking out the overdraft business had sadly become difficult with profit margins being drastically cut. This meant that I was spending more and more time within my overdraft rather than my account being in credit.

In August 2012 the bank called me in for a "yearly review". Upon sitting down at the business managers desk I was basically told that I would have to switch £8000 of the overdraft to a "barclayloan for business" or pay the overdraft back immediently. I was given no other choice and was not able to negotiate the rate on the loan. The rate was 25%APR (significantly more than the interest on the overdraft. I've paid £3800 so far but only £2000 has come off the amount owed). The loan was made up of £8000 credit and a £350 set up fee. (total loan amount £8350).

I felt under real pressure at the time of signing the loan (I thought I was going in for a yearly review) and I was basically bullied by the business manager into taking the loan out. The thing is the loan paperwork states:

"The loan will be secured as follows-
Guarentee from Mr (name of original overdraft guarantor) for £10,000"

but the guarantor never signed the paperwork for the loan and knew nothing about the bank switching £8000 of the overdraft to a loan until a few months later when I told him.

I have now been reviewing the paperwork as sadly my relative who was the guarantor has become critically ill and I was concerned as to who would be responsible for the loan should the business close and my relative is no longer with us.

I contacted Barclays tonight to see who's names were on the loan and they said it was my name plus the details above regarding secured by guarantor. When I asked how they could have him as guarantor even though he didn't sign the paperwork they said they could use the original security as I was not borrowing more than the original £10K security. (technically with the £350 set-up fee the total amount of credit was £8000 loan + £350 fee + £2000 remaining overdraft = £10350).

With all this in mind I have a couple of questions.

1. Was Barclays within they're right to force me to switch £8000 of the overdraft to the loan.

2. Can they automatically assume (and thus carry over the security) that the loan will be secured by the original overdraft guarantor without him signing the paperwork.

3. If/when my relative passes who will be responsible for the loan. Will it just be me or will they pass the security on to his spouse and/or estate.

Any and all advice is welcome on this.

Thank you in advance.

imoneyop

businessuser wrote: »

1. Was Barclays within they're right to force me to switch £8000 of the overdraft to the loan.

Yes - they could have just told you that they wanted an immediate repayment and not offered you a chance to refinance.

businessuser wrote: »

2. Can they automatically assume (and thus carry over the security) that the loan will be secured by the original overdraft guarantor without him signing the paperwork.

You would need to check the paperwork that he signed when he guaranteed the overdraft, but it is likely that they will have a clause in there somewhere that covers this.

businessuser wrote: »

3. If/when my relative passes who will be responsible for the loan. Will it just be me or will they pass the security on to his spouse and/or estate.

You would need to get legal advice on this, but potentially his estate could be liable in the even of his death. His spouse would not be personally liable, but any jointly held assets could be affected.

businessuser

Many thanks for your quick reply imoneyop.

I've looked for the original overdraft paperwork but don't have it. It must be with the solicitor who originally witnessed the signing. Let's say for instance there's nothing in the paperwork to say they can do that and I argue that the loan has been Mis-sold, am I actually likely to win or am I just wasting my time. I've read that most business banking is unregulated, is this the case.

I'm pretty sure that I'm going to wind the business up in the next couple of months (unless there is some kind of miracle turnaround in the economy that is). If I sell my remaining stock at trade price it should be enough to cover the loan but i'll still be left with the overdraft and personal credit card debt which I've racked up trying to keep the business going. Are the bank likely to take a reduced a payment to clear the loan and overdraft in return for me closing down the account. If so will this effect my credit rating.

Again, thank you for your help.

imoneyop

businessuser wrote: »

I've looked for the original overdraft paperwork but don't have it. It must be with the solicitor who originally witnessed the signing. Let's say for instance there's nothing in the paperwork to say they can do that and I argue that the loan has been Mis-sold, am I actually likely to win or am I just wasting my time. I've read that most business banking is unregulated, is this the case.

You need to separate out the loan and the guarantee - if there is nothing in the original paperwork about the guarantee being on going then they won't be able to enforce that so your relative will have had a lucky escape.

You are very unlikely to be successful with claiming that the loan was mis-sold though. You had an overdraft, which the bank decided to recall part of (as they are legally allowed to do). You had no way of repaying the money that you owed them so they offered you a solution, which you accepted. You could have looked elsewhere for a loan to repay them but there is no guarantee that another lender would have accepted you.

businessuser wrote: »

Are the bank likely to take a reduced a payment to clear the loan and overdraft in return for me closing down the account.

They might do - only they can tell you that. Obviously, if they have a valid guarantee from your relative then there is no reson for them to agree as they can just chase him for the money.

businessuser wrote: »

If so will this effect my credit rating.

That depends on whether you trade as a sole trader or a Ltd company - if you're a sole trader then the business's debts are your debts, so it will likely appear on your credit history. If it's a Ltd company then you are not personally liable for the debts (unless you also gave a personal guarantee).

businessuser

Just wanted to say thank you again imoneyop for your advice.

I thought I was probably clutching at straws trying to get out of paying all the money back.

I'm starting to make arrangements to sell my remaining stock and pay off the loan and overdraft.

God knows what I'm going to do work/life wise after this but you live and learn. Heres to the next step.

Crystallady

As I understand it bank guarantees do not usually specify a "product" ie the overdraft. They often guarantee your borrowings ie loan and/or overdraft. You would need to see the guarantee paperwork to confirm whether it was just for the overdraft, this should have been explained by the solicitor when your relative signed the guarantee.