Max had a good relationship with his bank. He had been banking with the same bank for 23 years.
The bank was always accommodating and always agreed to whatever loans he wanted.
Max was applying for further finance to replace plant and equipment and needed $180,000.
The bank said that was no problem. The interest would be 12.5% – which appeared to be standard industry rates at the time.
But a keen young finance salesman from another bank had a look at the situation and realised that –
The company had around $800,000 owing on plant and equipment at various rates ranging from 11% to 14.25%.
Each individual loan had been subject to a facility fee from the bank. These were secured over the specific pieces of plant.
The bank had collateral security over the company’s land and buildings worth an estimated $6,000,000. There was no mortgage on it.
The new bank manager –
Loaned Max the $800,000 plus the $180,000 for the new plant
Set up a credit line of another $1,000,000 Max could draw down on any time with no documentation fee.
Set the interest rate at 8.5% for the entire amount, because he secured it over the land.
Max understands now that the old bank was not on his side at all – they were on their own side!
(Names and details have been changed to protect client confidentiality)