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Debt Structuring

Why deal with one bank?

The short answer is DON’T! But don’t take our word for it and certainly don’t take the banks! Lets have a look at some Pros and Cons.PIG

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.

 

.Misconceptions

So your bank manager is a nice person and genuinely wants to help. But they have to go to a credit manager to get your loan approved, so they are essentially a product sales person and have sales targets to meet. They are employed by the bank to look after the banks interests first and the customers interests second. That’s why the banks refuse to provide loans to poor credit risks. Your bank manager is also limited by the products available to them. Ever notice how your bank manager never recommends another finance company product?

 Which leads to the next big question…….

 

What isnt 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.

 

Best For The Bank Or You?shh

The banks will seduce you with promises & platitudes and tell you they will look after you. But that’s when everything is 

sunshine and rainbows. What about when the storm clouds roll in? Do you want the bank having control when you need your flexibility the most?

 The banks want control (they don’t need it over everything) so they have leverage if things get tough. That’s why they put security in place to protect them, not you.

 But it gets worse, if you go through difficult times, your file will leave your managers hands and end up in the High Risk Department. Then you are dealing with Head Office and decision making on the banks part will solely be made to protect their interests. So the obvious question is……

 

How does debt strucutring help me?

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.

 

Typical Small Business - Securities & Debt Structure

debt structure

 

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