Q & A: What should I do when my bank cancels my overdraft without warning?

This question is hard to answer, because there are no simple answers here and the outcome of this situation could easily be fatal to the business and if you are personally guaranteeing this money – and you probably are – this could potentially be very serious for your personal life too.

The things that you need to do, in my opinion are:

  • Find out why? If the reason given are not satisfactory, you will need to get legal advice.
  • Try and extent the deadline? If that is possible reduce the overdraft as soon as you can, or negotiate a stepped reduction of the O/D limit, ie. by month or week.
  • Try and change bank, ASAP.

People often believe it is somehow always their fault, if the bank changes their attitude towards them, that is not always the case. Banks will always try and make you believe it is, but in reality they my have new internal guidelines for handing out money – banks can get into “cash-flow” problems too. So – don’t automatically assume it is always your fault.

Banks may have the right to recall a loan or overdraft, but I’m not sure if they have the right to damage your business by doing so – especially if the reason for the recall is not your doing. So if it comes to the crunch, get legal advice. This is one of the reasons why I hate these, IMO, often legal but still unreasonable arrangements between banks and clients.

Many years ago someone made the the loan, O/D – umbrella analogy and it goes like this:

When the sun is shining your bank gives you an umbrella;
when it is raining, they need the umbrella themselves.

It is best if you do everything possible to not need banks in the first place, by bootstrapping, outsourcing, planning your business and keeping your fixed costs as low as possible.

Remember sometimes, attack is the best defense even with banks, they may need their money, but they do not need bad publicity either. ST.

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