Overdraft Interest increased by 122% - Help

fatscamp

Hello all,

Looking for some help/advice.

We run a small Ltd company which has been trading for 2 years now. We originally set up an overdraft of £15k as our only borrowing (with hindsight this was a bad idea). We have used this fully during this time going into credit and then using the money in the business to help with expansion and growth. The OD has been well managed with only the occsaional day over the limit which bank allows anyway each month. They have never mentioned there was any problem with the way the account was managed.

Then out of the blue we receive an overdraft review letter and on speaking to our (hopeless) small business manager she advises that it is just a standard procedure and an annual review, even though this had never happened before. She advised that they could just withdraw the facility which would have been game over for us.

Anyway, SBM phoned back 2 days later said that OD reapproved and would review borrowing after our busiest time over the next 6 months (when the account will be in credit!!).

I then receive letter confirming this. In it it quotes that interest for the OD will be 15% above base rate (effective 20.75)a 122% increase, whereas it was previously 6.8%.

I have obvioulsy challenged this and asked for an explanation. The response, 'thats what it came out at'! There is no other explanation given. Also I annoyed that SBM failed to mention this on the phone when she advised the facility had been renewed. I have complained, explained I am not going to stand by and have my pockets picked and they are looking into it.

My question is, is there anything in the banking code or similar that sets limits on these things or defines reasonable increases or says that such dramatic changes need to be explained. I have looked and looked without luck!

Many thanks in advance
FS

ukbill69

If i was 15k overdrawn and the bank said that to me, id liquidate it for £3 grand and startup another ltd firm lol.

Savvy_Sue

And I'd be looking to change that overdraft into a loan and change my bank ...

Tooticky

Unfortunately you’re a business and you don’t have the same protection as an individual, I don’t know your current banking position but this is common practice when banks see that you are perhaps struggling a little on your account.

This is purely speculation on my part but it’s probable they know that it is unlikely another lender will step in.

They would question whether you will be able to continue trading and by putting the rates up now they will be able to reduce their losses, it’s likely they have a debenture on the loan, but they are rarely settled so the risk to them is high.

If you are in a position to then you should look to go elsewhere, but if you are not then it’s worth producing a clear financial plan to show how you are intending to improve your financial position, and again purely speculation on my part but you may have a cash flow problem and their attempts will only hasten your demise, if you can show that without the extra charges, you will be able to ride the storm and that you have a good handle on your finances then will be a high chance they may agree a better rate.

Also if your business bank manger isn’t very good, present your case to her boss or ask for another one.

My apologies if I got my assumptions wrong either way good luck!

Petmidget

Your best bet is really to change banks.

Most high street banks will offer matching terms, obviously you show them interest at 6 over base, and they will offer anywhere between 6 and 18 months free banking on top.

Dont let apathy cost you cash, thats what the banks really on