If you are the director of a business that has had the bank call in a commercial loan, you may be wondering why they would choose to lose interest income. Also, this has probably put your company in a very precarious financial situation to which you have no answers. How can you immediately come up with the money to settle the outstanding principal? If you had the money to do that you wouldn’t need the loan, would you?
The insolvency experts at Real Business Rescue can help you understand what is driving banks to call in loans whilst offering options which can literally save your business. If you fear formal insolvency proceedings, there is an answer to your distress. Let us help you find the option that best suits your needs.
It seems as though all banks are scurrying to call in loans they consider to be ‘bad debt’ even if commercial borrowers have been making timely payments. Many lenders have billions in outstanding debt which needs to be made liquid due to International banking regulations.
Actually, this all stems from the financial crisis which began sometime in late 2008 and continues today. Many banks offered loans which businesses couldn’t repay and as a result, a great number of banks folded. In order to avoid another such crisis, the Basel Committee on Banking Supervision developed strategies beginning with Basel I.
Basel I quickly evolved to Basel II and now there is Basel III in place that sets further restrictions on banks in terms of:
The improvement of governance and risk management within banks
The improvement of disclosures and transparency throughout the sector
How well the banking sector can absorb shocks from economic/financial crises
If you quickly glance at the first measure you will see that a bank must be able to absorb shocks if the economy suddenly takes a hit. These measures/restrictions were not in place prior to the 2008 crisis which many leading economists feel would have absorbed much of the shock, thus avoiding or muting the crisis as it unfolded.
Now then, the Basel III measures focus on two central issues, capital and liquidity. At the moment banks must have liquid capital at 2% of their net worth. However, with the advent of Basel III, financial institutions will be required to hold (set aside) at least 4.5%. By the year 2019 this change must be implemented which leaves banks scurrying to collect (call in) what they consider to be ‘bad debts.’
Even if you have been making your repayments in a timely manner and in the amount contracted, banks are monitoring their accounts for any red flags that warn of impending distress. If you are having difficulty collecting on your debts or if your business is spending more than it is taking in, this may trigger a red flag of DISTRESS!
Banks will then see your debt as a bad debt and will take steps to call in your loan. Keep in mind that they need to increase their contingency fund by 2.5% within the next 5 to 6 years. Although this may sound like a hopeless case, it can actually work in your favour!
So the bank wants to call in your loan which you are unable to pay in full at this time. What can we do to help you? The first thing to do is let us take a look at the loan contract agreed by the bank to see if they are calling in your loan legally. Not all lenders comply with rules and regulations as is evidenced by the myriad of mis sold financial products within the past decade.
As well, this ‘contingency fund’ is set aside to counteract bad debt and often banks are willing to agree to a settlement less than 100% of what you owe. By letting our insolvency specialists negotiate down the loan settlement, other banks may be willing to finance a totally new loan for a lesser amount.
We are expert at negotiating settlements and have been doing so successfully for more than 20 years throughout England and Wales. Real Business Rescue has a long and solid history of rescuing distressed businesses which should offer you hope during your current worries. If your bank has called in a loan, let us help you understand your options to avoid further duress. This is what we do and we don’t mind saying we do it well!
21st February 2019
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20th February 2019
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