How to manage your cash flow No. 2

Applying for a bank overdraft

Making a bank overdraft application is much like applying for a police clearance certificate. You have to prove that you don’t really need one.

Yes – that old adage that bankers give you an umbrella when its sunny and snatch it away as soon as a cloud appears, is quite true. (The only reason your bank hasn’t snatched away your umbrella is that your Bank Relationship Manager hasn’t noticed that black cloud hovering on the horizon yet – but just wait until your annual facility review!)

OK, so you fill in the bank’s 10-page application form and provide enough financial information to eliminate the entire Amazon forest. These days this process takes about 3 to 6 months, depending on who you got to help you amass all the info.

Then hooray, your overdraft is approved! But before you can get your grubby paws on all that lovely lolly, your BRM arrives with “some papers for you to sign”.

Security, security, security …

Your bank wants as much security as they can wheedle out of you. At a minimum they insist on an unlimited personal guarantee (even if the overdraft is only for R20 000). And, if all your assets are in your spouse’s name, then his or her personal guarantee as well (you should have done the transfer of your assets to your spouse after the overdraft was approved).

Plus, the bank wants the assignment of all your company debtors over to them. This means they can collect all the amounts your debtors owe you, if and when they feel so inclined.

What your BRM doesn’t tell you about debtor security is that all foreign debtors, all debtors over 90 days and all debtors who the bank feels are risky are excluded.They also neglect to tell you that they usually take only 30% of what’s left as the cover amount.

This means that, if you have R1 million in debtors (after all of the above mentioned exclusions), then they’ll allow you an overdraft of R300 000. And it doesn’t matter a fig that all your debtors are A grade, blue chip, financially solid companies who’ve been profitable for the last 100 years.

Author

Garth Trumble

Garth Trumble

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2017-04-24T22:16:17+00:00

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