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Bank Overdraft Problems

A Bank overdraft and loans may be secured or unsecured.

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If your bank account is regularly overdrawn without arrangement or in excess of your overdraft limit, not only will you incur penalty interest and charges, but you also run the risk of having the overdraft limit cancelled or not renewed when the agreement expires.

Management of your business and household finances can become chaotic if you lose control of your bank account. Unpaid Cheques, Direct Debits and Standing Orders will serve to worsen your debt problem and credit payments made into your bank account may be absorbed into paying interest and bank charges rather than covering payments you need to make.

You may find it easier to convert your overdraft into a loan, but remember, you will lose the flexibility of an overdraft as it is often a condition that your current account operates in credit only. You will also be committed to a monthly repayment - make sure you can afford this and make sure the interest rate is no higher than the overdraft rate.

If you cannot meet your current loan repayments or are in danger of going over your bank overdraft limit, it is important that you speak to your bank and agree an arrangement, which may include a restructuring or rescheduling of your current borrowing.

If you are able to, it is generally easier to deal directly with your own branch (and manager/staff) than deal with a central debt recovery unit, although banks operate differently. If you are able to reduce the balance to within the overdraft limit this may reduce borrowing charges.

Secured

This is where the bank has security over some or all of your business assets. In some cases they may also have security over personal assets such as a family home. A secured loan or overdraft must be treated as a priority debt.
If you are a Director of a Limited Company, you may have signed a personal guarantee that may be supported by a security over your home - this must also be considered as a priority debt.

Unsecured

Loans and overdrafts are unsecured where the lender does not have any security or guarantee. However depending on the circumstances, you may need to treat these as priority debts if you feel that you cannot get a banking service elsewhere and it is essential in the running of your business.