My bank is forcing me to restructure my overdraft

My bank is forcing me to restructure my overdraft into a loan. It will be more expensive and in 4-6 months time I may not even need an overdraft. Through circumstance I have never signed a directors' guarantor for the overdraft. Can they still force me into this position?

As with any service agreement that you enter into on behalf of your business, the terms provided will depend largely on your ability to negotiate strongly and consider alternative providers.

Firstly, your question doesn’t specify the length of the loan that your bank is suggesting, but this is important to look into. If the loan period lasts for an extended period beyond the business’ need for funding, then this is definitely something you should discuss with your bank.

Secondly, you must examine your cash flow forecast. This forecast will help you to establish what’s right for your business, and whether a shorter term overdraft or a more formal repayment programme via a loan is more appropriate. If you regularly live up to the limit of your overdraft, or are often just a few swings away from the limit then, depending on your circumstances, you may want to think about moving to a loan arrangement with a clear repayment schedule. This could also give you the structure to be able to plan your repayments and ensure that you’re moving towards repaying the debt with every payment.

A director’s guarantee can be an opportunity to demonstrate your confidence in your business to the bank, but it should be carefully considered and negotiated based on your individual circumstances. It is worth noting that a guarantee is only likely to be called upon in the event of a business failure.

It’s important that you meet with your bank face to face to talk through the different options being presented to you. Communication will be key in this instance, and if you can’t reach a resolution that works for both parties, then you should consider moving towards a banking partner that better understands your position.

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