If your bank has contacted you due to missed repayments on your business loan, credit card or overdraft, then it’s essential that you stay in contact.
Your bank will have a dedicated financial assistance team ready to help.
Under the Banking Code of Practice, your bank is required to consider how they can help you with your financial difficulties.
If you haven’t already, speak with a small business financial counsellor (1800 413 828) or if you are in a regional area, contact Rural Financial Counselling (1300 771 741). They can provide you with small business support and assistance to help make the right decisions for you and your business.
Alternatively, you can speak with an accountant or professional adviser.
What happens if I can’t make my repayments?
Stay in contact with your bank and they will work with you to try to find suitable options to help keep you in business.
You may receive a default notice
Depending on the arrangement you have in place, your bank may send you a default notice if you’re behind on your payments. A default notice is a letter from your bank to warn you that your loan account is in default due to missed payments. Please open any letters that your bank sends to you as they will contain important information as to your options and who to contact.
You should read your default notice carefully, as it will set out what the bank wants you to do, the time within which you have to do it, and other information about your position.
If you’re issued with a default notice, usually you’ll still have 30 days to come to an arrangement with your bank about your repayments. For equipment finance you will usually have 14 days. You can still ask the bank for help at this stage. However, if you don’t contact your bank or come to an arrangement with your bank, they may start enforcement or court action.
You may receive a Statement of Claim
It’s still important to stay in touch with your bank. Your bank will always look for ways to work out your loan or find another possible solution.
If they can’t do that, and you’ve been unable to meet the conditions of the default notice, your bank may lodge a legal document called a Statement of Claim. A Statement of Claim is a court document that sets out how much your bank claims you owe them, and why they’re making the claim. You should seek legal advice as soon as possible if you receive a Statement of Claim, and definitely within four weeks of receiving this document. If you do nothing, the bank might move to enforce your loan.
You can still talk to your bank and try to come to an arrangement about the loan even after receiving a Statement of Claim.
Legal costs relating to the Statement of Claim could be added to your loan balance. The sooner you contact your bank the better as this will help keep down the legal costs added to your loan.
The bank may appoint an external adviser under your loan terms
It’s in your best interests to appoint your own trusted advisers, and then develop a plan to discuss with your bank.
However, in rare cases a bank may appoint its own external adviser. For example, if there is an immediate risk to perishable stock.
Should this happen the bank will act fairly and sensitively to manage potential conflicts of interest.
The bank may enforce the loan
If you can’t resolve the financial difficulties faced by your business, then your bank should allow you reasonable time and work with you to sell assets and achieve an orderly winding up of your business.
Sometimes it may be in your best financial interests to sell your assets, especially if you can’t make repayments and are losing any equity you had in those assets.
It’s important to understand that delaying decisions about selling assets or winding up your business may increase your costs. Your assets may have reduced in value compared with selling earlier, which may result in a larger financial loss for you.
The best thing you can do is talk to your bank. They will try to help consider possible solutions that are right for you.
Loans subject to a guarantee
If your loan is subject to a guarantee, your bank will notify your guarantor about your deteriorating financial position, and within 14 days, provide:
- A copy of any formal demand or default notice that the bank gives the borrower
- A written notice if you have advised your bank that the borrower is experiencing financial difficulty which has resulted in a change to the loan
- A written notice if the borrower is in continuing default for more than two months after the issuance of the default notice referred to above.
If you default you may be required to sell assets or property to pay back the loan. If you are unable to cover the loan and the sale price does not pay back the full loan amount, the bank may be able to enforce the guarantee and recover the difference from the guarantor.
It’s a good idea that you and your guarantor seek separate legal advice upon receipt of any notice or formal demand for payment to a guarantor. Guarantors can also contact the bank if they are experiencing financial difficulty.
What if I need a lawyer?
If you have limited funds to pay for a lawyer, the Law Society in your state can give you the names of lawyers who might be able to help with your case. The lawyer will need to explain how much their services are likely to cost or they may take your case ‘pro bono’, where they are able to waive their fees.
Will this affect my credit rating?
If you’re in default your credit rating may be negatively affected. A poor credit rating can affect your ability to receive finance in the future. Your bank will tell you if they make a report about a default to a credit reporting body.
The Moneysmart website explains what you can fix and how to do it for free.
What if I’m not happy with my bank’s response?
If you’re not happy with your bank’s response, you can make a complaint. You can find more information here.
In many cases, the complaint will be resolved internally between you and your bank with no further action required.
However, if your bank still doesn’t resolve the complaint to your satisfaction, you can take your complaint to the Australian Financial Complaints Authority (AFCA).
AFCA is an independent complaints scheme that is free for small business customers. It provides an accessible way of resolving disputes, without having to go to court. The decision of the AFCA is binding on the bank. AFCA can only consider a complaint about a small business credit facility is under $5 million.
You should only go to the AFCA after you have tried to resolve things with your bank, as AFCA will not deal with your complaint unless you have first given the bank the chance to help you.