What will the bank do?

Banks and other lenders usually have lots of power over a company because they have security, usually a fixed and floating charge and maybe a mortgage over land, buildings or equipment and maybe the directors house or other assets.

If the company defaults on interest or principal they can exercise their security or foreclose on the property secured. But be aware that they usually use that power reluctantly and carefully because they have to follow certain legal rules or else they lose that power. They also probably know a lot about you and the company because the bank may have the company’s trading accounts.

What the bank or other lender do, how they respond, all depends on how the bank perceives the problem. Technically if the bank or other lender suspects your loan is at risk of not being repaid (their doubtful debt), they have a statutory duty to drag money back from other sources to have on hand to cover all of the principal and interest that the company might not be able to pay. Whereas for performing loans the bank or other lender keep only a fraction of the total debt which means they can lend more and make more money. So the bank or other lender would much rather hear a story with a happy ending (they get paid even if it is a little later) than be surprised by continuing defaults or an out of the blue notice of company failure and have to exercise their security or foreclose on a mortgage. If you can show them you recognise the problem and have a solution, the bank or other lender will give you points for curtesy and disclosure. It helps if you have an expert advisor like Triple R in tow. It is a sign that ‘it is different now’.

If you are keeping up repayments and if the bank or other lender have good security cover they may just sit and be happy to negotiate. If not, they may be nervous and act to exercise that security. You need to be able to calm them down.

If the bank or other lender know you have a plan and if a third party like Triple R can ‘intercede’ on your behalf and present an insolvency reversal plan, they may continue to ‘sit’ while things are resolved. The key is to be proactive and respectful and to present a persuasive story.

Remember that the bank or other lender has a distinct advantage over other creditors of a business. The bank probably knows exactly what funds are on hand and can assess and analyse the flow of funds through the account conducted by the bank.

If the business has borrowed money from the bank, the business owners will have to provide financial information from time to time and the bank will have the ability to demand further information at any time. None of this information is usually available to ordinary creditors who supply inputs to your company.

So a bank or other lender are usually very powerful but it helps to know what the bank manager faces and that he or she must be careful too. it helps to know the rules and politics of banking and lending, how fixed and floating charges and mortgages work.