Bank wants an interview, calling in a debt (perhaps)?

[Bexiesbruv]

I took out a loan to build a shop 4 years ago. It was a 5 year loan, 3 year term. The bank never sent a renewal last year and I didnt realise either.
Now they want to talk to me about paying it out or renegotiating a new (higher percentage) term.
I figure rates probably went down in the last year (certainly my personal mortgage did) so they likely owe ME money.
I intend to listen to what they have to say and then make a decison. I have the cash to pay it off but dont particularly want to.
I am not really sure, until I get in there, just which way this is going to go. I dont want to jeopordise my line of credit by being bull headed, but also think the bank needs to be held in check, and what I mean here is that i dont want them dictating what I have to do.
I do have another business account, also with a line of credit that I can revert to using for all my daily banking needs if I have to get extreme and shut this one down.
I also have enough credit in my line to pay it off as well. the line is slightly higher interest than the loan but I can pay that faster.
Any thoughts on how I should handle this?

Bex

 

[Ken Raddon]

You lost me at "i took out a loan." You sound like you know your stuff. Just be confident in your self and you'll make the right decision for your situation.

 

[Spazznout]

This is the price that comes with utilizing debt to maintain operations.
You are in fact beholden to the banks now.
You are gonna have to jump through their hoops.

OR

You can get yourself into a debt free situation.
Then you are truly free to operate as you see fit.
You will only then truly "own" your own business.
Until then you operate solely at the discretion of some bankster sitting in a board room.
Todays meeting is evidence of that.

Play nice.
Would hate to see the other bank call your line of credit or raise your rates due to a poor outcome of todays meeting with bank A.

Good luck today.
Find a way to take control of your future and eliminate future meetings being forced upon you like this one.

 

[Bexiesbruv]

Spazznout, thats a great reply and it really focuses me for the future. Thanks.
Just pay it off and get them off my back.
I do disagree a little though and please chime in with an opposing view, I am ALWAYS open to constructive criticism and/or advice.
I took the loan to build the shop in preference to paying twice the loan repayment in rent. Where is the flaw in that decision? Now I have a heated shop on my own land thats (almost) paid for and no future rent overhead to be concerned about. Additionally, the shop adds value to my property.

The meeting is later this week so I have time to think about options, one of which is to chat with the other (or another) bank about my options.

I was told by a very wealthy oilfield friend to set up my lines of credit when I dont need them. By doing this, you put them in place when you are on top so when you do need them, they are available and you dont need to go begging.
That turned out to be very sound advice.
I think next year will see both lines at zero (one already is)

Whats your view on new vehicle/equipment acquisition?
This is getting off the original topic but I hope thats OK?

Bex

 

[Spazznout]

One downside to financing your shop is what you are currently dealing with and the reason for your original post. The loan was obviously NOT risk free for you either. Since your new shop was built on your property I am going to assume that the property was used in some part to secure the note. In other words if tragedy or calamady had struck your business and you could not make the payment, the bank would own your new shop and home both. Taking loans is leverage. When you leverage things the laws of exponential math come into effect. By taking a loan you can loose more than the original investment. And the shop was that. An investment. Then there is the interest paid to take into consideration. Then there is the fact that every loan has clauses for why the bank can call the loan for any reason at their discretion.

So in your case how long would it have taken you to save the money in capitol reserves to pay for a new shop on your land in cash???? Now, the rents you paid along the way while saving, were they worth more or less than the savings of taking a loan and all of the risks, hassles, and surrendering of your companies future to some fat cat banker??????????


I know what I am saying goes against main stream thinking and against everything taught in schools. But do you want to be as free as possible to run your own business the way you see fit or do you need invisible strings pulling you around hampering you from reaching your maximum potential???

As far as new equipment or equipment to expand.
Very honestly. No Debt. NEVER, ever for equipment.
IF you think you are ready to expand and add new equipment you WILL be making enough to easily buy a 10-20K setup in cash for expansion.
IF you want to replace old equipment as an O/O or multi van operation you should definitely have the cash on hand for new setup. IF not you are running a bad business and need to rethink what you are doing wrong. Taking a loan under those circumstances is asking for trouble and totally enslaves an owner to the banks. A company that does NOT have the means to save the monies being borrowed using only the current dollars coming in, in order to buy or replace equipment, for them the risks far outweigh the benefits and does not present a very good calculated risk in my opinion.

In 2008 and the years following we had several large and dozens of O/O go out of business due to the recession in the Columbus Ohio Market. The #1 cause was too much debt for too much equipment.
These companies ran with very high fixed costs in part due to the debt held.
Debt payments go directly to your fixed costs.
This restricts mobility and flexibility for companies.
This destroys companies when the business dries up for even a few months.

As for your oil friend.
I think he has presented an old school false dichotomy or choice.
The bankers have worked long and hard to make it feel like and seem like the only way to success is through them, I assure you it is not.

Why don't you go with option 3, the option hardly discussed. Simply develop capitol reserves, which will give you the flexibility within your company that will allow you to continue to operate without the need for a loan from a bank regardless of market conditions. Why do you need to leave willing enslavement to another human being as the primary option on the table to keep your business going through a downturn or slump in the economy?????? And make no mistake, taking a loan is just that. Ask all the BK CC companies of the last 4-5 years.

We are not large oil companies that have a product that must be consumed as it is the literal oil that keeps the economy lubed. Your oil friend is in a very different position when he takes and talks about taking loans.

Maintaining low fixed costs with capitol reserves to cover those fixed costs for extended periods of time is the key to NOT needing to take a loan.

 

[Bexiesbruv]

Interesting. And true. I fell in the trap.
When back in the UK, I owned a small funeral home. The only debt I had was the interest free loan the seller made to pass the business on to me. In three years he was paid off. All my vehicles were owned by me, so too the equipment. It was a great feeling. I WILL get back to that.
I have been looking for a goal and thats it.
My very grateful thanks.

 

[Bexiesbruv]

Update.
So, I had my chat with the bank today. it was mainly to introduce me to my new account manager and to chat about the loan I have.
We chatted about how I came to be with the bank in the first place, I thought it would be smart to get it across to him the it was the bank that called me and asked for my business when the branch was first opening. Also that I had a discussion with a telephone banking specialist some time ago about the loan and they at that time suggested I keep it rather than paying it off. So the seeds were set and I asked him what he had in mind.
Turns out he was going to ask me to pay it out but we ended up renegotiating a lower rate and a reduced (I had 2 years left on it), 12 month term from this month. The new payment is $1.00 per month less than I am paying.
I also asked him to reduce the interest rate on my line of credit, which he is looking at (I wont hold my breath) AND if I switch my credit/debit card processing deposits to the bank he will put a "no charge per deposit" on the account which will save me about $800/$1200 a year.
All in all a pretty good meeting and fitting perfectly with my newly developed plan to be dept free in 5 years.
My thanks once again to all that contributed.

Bex