Funny situation with bank

theshopkeeper

I have a shop, purchased freehold, with a mortgage of 1.1 million from a large bank with an office in dublin. The original agreement was interest only for 12 months then twenty years, interest capital. This works out at 6 thousand interest, then 6 thousand plus 2 thousand capital repayment now.

Now the economy has turned, I asked about staying on the interest only rate for another year or two.

The reply I got was that it could probably be arranged but the rate would rise from 6000 interest only, to 7000 per month with nothing off the capital. Now to me, this stinks, the banks are supposed to be helping new business but this is pure acting the maggot. They have opted out of the irish bail out in favour of the UK one, so they are not in any danger. (Guess which one!)

My business has certified accounts to show profit of 30k for its first year, but it will be nothing like that this year.

I am a working owner so can/will/have cut the hell out of the staff to reduce costs but this from my bank is taking the mickey.

Anyone got any input or experience of this. My accountant is monitoring the situation so be may have something to say about this next week so there is no need to tell me to seek professional advice.

Thanks in advance

GerardKeating

theshopkeeper wrote: »

The reply I got was that it could probably be arranged but the rate would rise from 6000 interest only, to 7000 per month with nothing off the capital. Now to me, this stinks, the banks are supposed to be helping new business but this is pure acting the maggot.

Saying "YES" with an unattractive offer is another way of saying NO...

Blackjack

theshopkeeper wrote: »

I have a shop, purchased freehold, with a mortgage of 1.1 million from a large bank with an office in dublin. The original agreement was interest only for 12 months then twenty years, interest capital. This works out at 6 thousand interest, then 6 thousand plus 2 thousand capital repayment now.

Now the economy has turned, I asked about staying on the interest only rate for another year or two.

The reply I got was that it could probably be arranged but the rate would rise from 6000 interest only, to 7000 per month with nothing off the capital. Now to me, this stinks, the banks are supposed to be helping new business but this is pure acting the maggot. They have opted out of the irish bail out in favour of the UK one, so they are not in any danger. (Guess which one!)

My business has certified accounts to show profit of 30k for its first year, but it will be nothing like that this year.

I am a working owner so can/will/have cut the hell out of the staff to reduce costs but this from my bank is taking the mickey.

Anyone got any input or experience of this. My accountant is monitoring the situation so be may have something to say about this next week so there is no need to tell me to seek professional advice.

Thanks in advance

Cost of borrowing on the interbank market has gone up. Plus, you're looking at making 30k in year one but nothing like that this year, which increases the risk the bank has by having your loan on their books.

If you don't like the terms, then don't accept them. You may be best placed to stick it out, unless you can get a better rate elsewhere, in which case you should go for it.

As a brief calculation which could be wrong, it looks like you got a rate of 6.19 or thereabouts - I don't know if you can get better than this but it may be worth talking to BOI or AIB, given their recent dealings with the Government. I've not read up on the details of their recapitalisation programmes, but I believe they are required to do some lending to SME's, so you may benefit.

theshopkeeper

I agree completely and understand exactly what your are saying.

However, in the curent climate of serious pressure on retail outlets, the bank should be working with me, not against me on this. It would seem they are trying to bleed me dry and if this causes me to go bang, I loose everything, and they have a retail outlet in dublin that no one wants. They are only cutting their noses off to spite their faces. I am making indirect approaches to the bank via accountants who deal extensively with them. We shall see what comes of them.

As for my rate, I am paying 1.55 above EURIBOR rate.

IsThatSo?

theshopkeeper wrote: »

The reply I got was that it could probably be arranged but the rate would rise from 6000 interest only, to 7000 per month with nothing off the capital. Now to me, this stinks, the banks are supposed to be helping new business but this is pure acting the maggot.

Yes, it does stink but GerardKeating summed it up nicely.

Morally, yes, they should be helping the small business but they are not bound to do it and if you want to change the T&C of the contact you signed then they are within their rights to make their own changes too.

I expect there are a lot of people, consumers and businesses, finding their loan repayments steep. Banks are probably only going to get more unsympathetic as they get more of these calls.

There isn't a lot you can do about it only shop around.

Hope it works out

uberwolf

theshopkeeper wrote: »

As for my rate, I am paying 1.55 above EURIBOR rate.

That is an attractive enough rate. Is it 1 month or 3 month euribor?

The Euribor (particularly 3 month) has plummeted over the last month. It was 2.8 or so today, having been north of 5 in November. There is every chance that your P&I payment will now be less than Interest was recently.

at 6k p.m. (72 p.a. you were paying approx 6.5%), that should be 4.5% now with euribor dropping, or 2k less per month. (round figures, I'm not getting the calc out! )

The banks have repriced risk, and need to squeeze every last penny out of their portfolios. Your loan is costing them more than it used to, so they're seeking to pass it on.


Give it a month or two, and see how your rate responds to the market - euribor rate is published daily in business section of I.T.

stepbar

theshopkeeper wrote: »

I have a shop, purchased freehold, with a mortgage of 1.1 million from a large bank with an office in dublin. The original agreement was interest only for 12 months then twenty years, interest capital. This works out at 6 thousand interest, then 6 thousand plus 2 thousand capital repayment now.

Now the economy has turned, I asked about staying on the interest only rate for another year or two.

The reply I got was that it could probably be arranged but the rate would rise from 6000 interest only, to 7000 per month with nothing off the capital. Now to me, this stinks, the banks are supposed to be helping new business but this is pure acting the maggot. They have opted out of the irish bail out in favour of the UK one, so they are not in any danger. (Guess which one!)

My business has certified accounts to show profit of 30k for its first year, but it will be nothing like that this year.

I am a working owner so can/will/have cut the hell out of the staff to reduce costs but this from my bank is taking the mickey.

Anyone got any input or experience of this. My accountant is monitoring the situation so be may have something to say about this next week so there is no need to tell me to seek professional advice.

Thanks in advance

You have a very real problem. Unless you have further security to offer up I would say that this is a non runner, especially considering that you haven't even started to make capital repayments and the property LTV is probably in effect >100% (i.e negative equity). Realistically you may have to cut your cloth to suit the suitation you are in at the moment. The days of pure asset based lending are gone. That's what has the world in the mess it's in at the moment.

theshopkeeper

My rate is 1.55 over the Eurobor 3-month average. My accountant tells me that I am wasting my time trying to stay interest only. The banks are currently out for blood to rebuild themselves so we shall have to see how we get on. This past two weeks, my store has been down about 30%

stepbar

theshopkeeper wrote: »

My rate is 1.55 over the Eurobor 3-month average. My accountant tells me that I am wasting my time trying to stay interest only. The banks are currently out for blood to rebuild themselves so we shall have to see how we get on. This past two weeks, my store has been down about 30%

TBH I'd be more concerned about the state of your business and your ability to repay your borrowings. I would say (even at this early stage) there's a stong possibility that you could end up in a position where the bank maybe forced to call in the debt. I would be concentrating on cutting costs because you are not going to be able to change the bank's position in the short term.

theshopkeeper

Very interesting.

So at what stage do you typically have to be concerned about the bank calling in the loan? This is going back to one of the original questions of the bank cutting off its nose to spite its face. In the current climate with everything crashed, what is the point of calling in a loan when the best chance is to knuckle down and work through it. I am sure the bank, like all banks, have enough toxic loans as it stands without creating more.

I have more motivation than anyone - you can thank a young family for that. We will (and may have to) move in upstairs if necessary. I can-will-nearly am working seven days to get through this.

Before christmas, shops I know were bouncing debits. Now the seasonal/recessional drop has happened they are bollixed. I am still sitting on a reasonably full shop with some money in the bank. I WILL SURVIVE! It will be very very hard, but I will not let it beat me.

stepbar

theshopkeeper wrote: »

Very interesting.

So at what stage do you typically have to be concerned about the bank calling in the loan? This is going back to one of the original questions of the bank cutting off its nose to spite its face. In the current climate with everything crashed, what is the point of calling in a loan when the best chance is to knuckle down and work through it. I am sure the bank, like all banks, have enough toxic loans as it stands without creating more.

I have more motivation than anyone - you can thank a young family for that. We will (and may have to) move in upstairs if necessary. I can-will-nearly am working seven days to get through this.

Before christmas, shops I know were bouncing debits. Now the seasonal/recessional drop has happened they are bollixed. I am still sitting on a reasonably full shop with some money in the bank. I WILL SURVIVE! It will be very very hard, but I will not let it beat me.

I'd start to be concerned if you start missing repayments (>3-6) and if the bank starts to bounce payments / chq on the business. It goes with out saying that T/O will be significantly down at this stage. Who knows it could be months before you may start to see a deteriotion in the business a/c's. I don't mean to alarm you but at least you have raised the issue with the relationship mgr and they are aware of the suitation. But the onus is now on you to tackle the issue now rather than later, because letting things slip and hoping that you may catch a lucky streak can often the worst thing you can do. The bank will try to accomadate you but often the decision doesn't lie with the relationship mgr. More often than not they will have to go up the line for a decision.

Relevant

So you own a store in dublin in which takings have gone down c. 30%. It is probably also fair to say that the value of the property has gone down since you orignally borrowed for it. Therefore as has already been said the Loan to Value ratio is less attractive to the bank. ie. loan amount staying the same but value of security is decreasing. So not only is security value down but your capacity to repay has also diminished.

Even without your decreasing revenue the bank would be taking risk on interest only. Your decreased revenue just makes it too much of a risk to take

I think i know which bank you refer to and you will find that they didn't "opt" for the british scheme but in fact didn't really have a choice given the fact that their parent company was entering into it.

While I agree that the bank should be helping you it is important to realise that YOU signed a facility letter agreeing to the specific T&Cs which you now must adhere to.

Best of luck with it anyway

uberwolf

stepbar wrote: »

More often than not they will have to go up the line for a decision.

With the bank in question they always have to go up the line for a decision