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As a small business owner, you may have found yourself earning drastically reduced revenue thanks to COVID-19. This can be exacerbated if you are also heavily in debt, having invested and borrowed pre-pandemic to establish or grow your business. 

Your business may have received financial relief thanks to a pandemic-led moratorium on repayment loans. But what happens when this lifts in January 2021? It is important to develop an action plan in preparation for this occurring. This article outlines how you can negotiate terms with your bank and what to do if the bank refuses to cooperate.

Talk With Your Bank Now

Once the moratorium lifts, some borrowers will be caught out by banks issuing default notices. To prevent this from happening to you, get in early. Contact your financial institution and confirm exactly when they regard the moratorium as lifting; there is some confusion whether it will be September 2020 for some borrowers or January 2021 for others

Regardless of the when the bank will lift on repayments on your loan, you should try to negotiate a repayment reduction. Even if the moratorium is extended, this extension is not free – interest continues to accumulate and the outstanding balance of the loan only increases.

It is vital that you continue to pay back as much as you can and ensure that the bank records these payments as full payment towards the outstanding balance, not as a default. This is particularly important if your business is unlikely to recover enough to repay the loans in the repayment schedule as originally anticipated under the agreement. You do not want you or your business’ credit record affected by these extraordinary times.

Talk with your bank about extending your loan term and reducing repayment instalments. As interest rates have fallen in recent months, it may also be possible to negotiate an interest rate reduction. 

Submitting a Complaint

If the bank will not cooperate in coming to a revised agreement, consider using the complaints process. This will allow you to continue negotiations with the assistance of a mediator.

The Australian Financial Complaints Authority (AFCA) deals with customer complaints against banks and other financial institutions; complaints against banks are treated with increased scrutiny following the Banking Royal Commission.

The banks monitor AFCA’s complaint data. This is because they want disputes to be handled fairly, particularly at this sensitive time. This will give you some bargaining power to renegotiate the terms of your loan.

The complaints process is clearly described on the AFCA website. If you are struggling to repay a loan or are in dispute with your bank, follow the complaints procedures. If direct negotiation with the bank fails, AFCA can appoint an experienced mediator to assist in resolving the dispute. This could take several months. However, most banks are reluctant to take drastic action if this process has been initiated. At the very least this process will buy time to consider your options and develop contingency plans.

Attending Mediation

Generally, a representative from the bank will attend the mediation. During the pandemic, mediation is conducted via teleconference. 

When your opportunity to speak arises:

  • present your case professionally and diligently;
  • make sure you have all the details regarding the loan and the relevant correspondence organised and ready to refer to in making your presentation; and
  • ensure you have sent copies of these documents to the mediator prior to the mediation.

Although not required, consider engaging an independent advisor such as a lawyer or financial advisor who has experience dealing with banks and with AFCA. This can:

  • reduce your stress over the mediation process; and 
  • allow a more objective discussion to take place regarding possible solutions to the dispute.

Obtaining a Positive Outcome

We have seen very good outcomes via the AFCA mediation process. Banks are willing to resolve matters swiftly where a borrower has a reasonable complaint and can suggest a way forward. The banks do not want long, drawn-out disputes with customers. If you can suggest a practical way in which a loan can be restructured, the banks are usually willing to listen.  

Unfortunately, there are many bank customers who are simply bad credit risk and who never fight to clean up their credit record or their loans. The banks have little sympathy for these customers and these customers rarely get professional advice and fight for a better deal.

Do not become one of those customers. Be proactive if you get into financial difficulties and actively suggest a way forward to resolve the issue. If the bank does not agree, the mediation process via AFCA is definitely worth considering.

Key Takeaways

The COVID-19 pandemic has led to an economic recession that is impacting many small businesses. If you have received loan repayment relief under the moratorium, it is worth having an action plan to manage your financial circumstances when the moratorium lifts in September 2020. This plan may include negotiating new terms with your bank, or seeking mediation to resolve a dispute should your bank not cooperate.

If you need assistance in dealing with banks and with the AFCA mediation process, LegalVision’s experienced banking lawyers can assist. Call us on 1300 544 750 or complete the form on this page.


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