Why pay sky high overdraft rates?
Most banks are more than happy to give you lending for your business, and why shouldn’t they, it makes them mountains of interest and charges. They also get to have title to your property, so they are in effect offering secured lending, at unsecured rates.
Many lenders now offer flexible type mortgages, where you can pay lump sums off your balance, write cheques from a cheque book, against your mortgage up to a pre agreed amount, and best of all, at mortgage rates, NOT overdraft rates. So what does this mean? let’s look:-
Lets say you have a cash flow problem that will be resolved when a big customer pays you in a month or two, how would this work?.
The bank will invite you in, ask you for a business plan (this will cost you time or money or both), the bank will then humble you, by telling you your business is risky and that they feel the need for some form of security (usually your home). they will then arrange the paperwork, charge you a hefty sum for the meeting, a hefty sum for the facility, which they will attach to your account for longer than you need it, and a monthly management fee thrown in. When the big customer pays up, you deposit the cheque and bring your account back into the position it was before the overdraft was added. The bank however will continue to charge you for the facility until the end of the agreed term. All in all a rather humbling experience
You sit down, work out how much you need, check how much is outstanding on your mortgage, and write a cheque from the chequebook, and deposit it into your account. No calls, now begging, no paperwork (other than writing a cheque). Your mortgage balance will be adjusted and you will begin to pay interest AT MORTGAGE RATES on the new higher amount. When the big customer pays you, you write a cheque, and bring your account back into the position it was before the extra amount was added. You will now pay interest on the amount outstanding, and as interest is normally calculated on a daily basis you will never pay interest for longer than you should.
An added benefit that many business people have told us, is that they are free to move banks, and often this gives them the power, not the bank, to decide how their business account is run.
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