Bank Loan question

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Forums › Finance and wealth management › Bank Loan question

networkn

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#251228 14-Jun-2019 11:12

I am the owner and shareholder of a limited liability company. I am a PAYE paid employee of that company. I am with a bank and was considering getting a personal loan for a relatively small amount of money.

My bank has advised they would require a full set of financials from the company, and when queried as to why, given the loan is personal and would be serviced by my salary, said they always require this under new lending requirements cited by the RBNZ. They also said that if I was a director/shareholder of more than one company, they would require financials from all the other companies as well. When I suggested the scenario where if I was a shareholder and director of multiple companies and those companies had other shareholders etc, they said they would require financials from those people as well.

That seems insane to me and I am sure they are incorrect about this. If I didn't have a company they wouldn't require this information, simply my salary and outgoings to determine if I was safe to make payments.

They assure me it's to protect me...

I could imagine that if this is true, there would be some serious privacy issues. especially as it relates to the other shareholders. If they (quite reasonably in my opinion) refused to provide this, then potentially my bank could refuse me a loan.

Does anyone here have any experience or knowledge in this area.

We have business, personal and home loan business with this bank.

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#2258053 14-Jun-2019 11:14

If it's the ASB they used the RBNZ crap with me and they were 110% incorrect

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#2258058 14-Jun-2019 11:19

Welcome to the world of attempting to get finance for anything when you're not a run-of-the-mill salaried employee.

I'm in the same boat as you (but with ASB) and it's always a nightmare getting the right paperwork to do basically anything in terms of lending.

Could you perhaps go to a different bank or provider for the small loan and apply as just a salaried employee? Unless your business name is the same as your personal name, surely it's just as if you were working for any registered company and being paid a weekly/monthly salary (with pay slips)?

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#2258062 14-Jun-2019 11:24

Linux:

If it's the ASB they used the RBNZ crap with me and they were 110% incorrect

IIRC your situation was totally different to this one.

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#2258065 14-Jun-2019 11:29

I've obtained personal loans from ANZ with no issues (dont think they even asked if I was a director/owner of anything, just long as the funds came in to cover the loan), and I'm the part owner in a company. Does seem a bit extreme.

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#2258070 14-Jun-2019 11:39

I believe this is fairly standard practice. If you were an employee only, you would not be asked for financial info on the company. However because you are the owner of the company from which your income arises, the bank wants to be sure that the company isn't in financial strife and that you're not borrowing personally to prop up a distressed company.

The bank is also under a heightened requirement not to lend beyond the borrower's ability to service the debt - so it is for your own protection. This relates back to the level of your exisiting debt. It's hard to comment further on this without knowing all your personal details - it's a case-by-case thing.

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#2258074 14-Jun-2019 11:53

Benjip:

Welcome to the world of attempting to get finance for anything when you're not a run-of-the-mill salaried employee.

I'm in the same boat as you (but with ASB) and it's always a nightmare getting the right paperwork to do basically anything in terms of lending.

Could you perhaps go to a different bank or provider for the small loan and apply as just a salaried employee? Unless your business name is the same as your personal name, surely it's just as if you were working for any registered company and being paid a weekly/monthly salary (with pay slips)?

.... except that approach would be less than 'full and open disclosure' and would land in him deeper strife with any bank if/when they find out. There are all sorts of fishhooks with this approach.

Sometimes I just sit and think. Other times I just sit.

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#2258078 14-Jun-2019 12:04

eracode:

Linux:

If it's the ASB they used the RBNZ crap with me and they were 110% incorrect

IIRC your situation was totally different to this one.

Goes to a tendency for banks to not understand their RBNZ requirements properly, rather than a comparison of specific situation.

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#2258081 14-Jun-2019 12:09

eracode:

I believe this is fairly standard practice. If you were an employee only, you would not be asked for financial info on the company. However because you are the owner of the company from which your income arises, the bank wants to be sure that the company isn't in financial strife and that you're not borrowing personally to prop up a distressed company.

The bank is also under a heightened requirement not to lend beyond the borrower's ability to service the debt - so it is for your own protection. This relates back to the level of your exisiting debt. It's hard to comment further on this without knowing all your personal details - it's a case-by-case thing.

And then there is all the new anti money laundering stuff that is now required.

Gets even messier when Trusts are involved.

eracode

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#2258086 14-Jun-2019 12:20

gehenna:

eracode:

Linux:

If it's the ASB they used the RBNZ crap with me and they were 110% incorrect

IIRC your situation was totally different to this one.

Goes to a tendency for banks to not understand their RBNZ requirements properly, rather than a comparison of specific situation.

Fair point - but in this case the reference to RBNZ rings true whereas in Linux' case it was FUBAR.

Sometimes I just sit and think. Other times I just sit.

eracode

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#2258089 14-Jun-2019 12:26

sir1963:

eracode:

I believe this is fairly standard practice. If you were an employee only, you would not be asked for financial info on the company. However because you are the owner of the company from which your income arises, the bank wants to be sure that the company isn't in financial strife and that you're not borrowing personally to prop up a distressed company.

The bank is also under a heightened requirement not to lend beyond the borrower's ability to service the debt - so it is for your own protection. This relates back to the level of your exisiting debt. It's hard to comment further on this without knowing all your personal details - it's a case-by-case thing.

And then there is all the new anti money laundering stuff that is now required.

Gets even messier when Trusts are involved.

Yep. The AML stuff involves not just banks but also now law and CA firms, which have had to make massive and costly adjustments to their procedures to comply with the rules. Those costs ultimately get borne by their clients. But this is OT.

Sometimes I just sit and think. Other times I just sit.

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#2258138 14-Jun-2019 12:50

eracode:

.... except that approach would be less than 'full and open disclosure' and would land in him deeper strife with any bank if/when they find out. There are all sorts of fishhooks with this approach.

How so? You go through the online application process, it asks you your weekly income, and the name of your employer.

Are you suggesting you should give the bank your every personal detail, over and above what they ask for?

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#2258141 14-Jun-2019 12:58

I know a few people that have struck this and this article helped them out.

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#2258148 14-Jun-2019 13:06

Unfortunately, the "golden rule" with banks applies, he who holds the gold, makes the rules.

Banks are entitled to assess a borrowers ability to repay a debt, be that from a wage / salaried worker or company or anything in between. The financial strength of the company that you own is directly relevant to your ability to meet repayments. Whilst you may draw wages / salary by the means of a normal salaried employee, the relationship is not arms length and you could make the figure read anything that you like, whether or not the company has the capacity to sustain that figure.

Frustrating no doubt, but with the amount of noise being made in the media about irresponsible lending, loan sharks preying on the vulnerable and IIRC even the Aussie banks being held to task about dodgy lending practices, its no surprise that banks are tightening up on their processes.

networkn

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#2258155 14-Jun-2019 13:16

sen8or:

Unfortunately, the "golden rule" with banks applies, he who holds the gold, makes the rules.

Banks are entitled to assess a borrowers ability to repay a debt, be that from a wage / salaried worker or company or anything in between. The financial strength of the company that you own is directly relevant to your ability to meet repayments. Whilst you may draw wages / salary by the means of a normal salaried employee, the relationship is not arms length and you could make the figure read anything that you like, whether or not the company has the capacity to sustain that figure.

Frustrating no doubt, but with the amount of noise being made in the media about irresponsible lending, loan sharks preying on the vulnerable and IIRC even the Aussie banks being held to task about dodgy lending practices, its no surprise that banks are tightening up on their processes.

Sure, but with a 20 year period of time where the company in question has been incorporated, and the salary being paid monthly and for at least 10 years of that, into said banks bank account, no company could sustain that if it wasn't solvent.

I could understand it in a company where a salary had been paid for just a few months...

The issue I had that was more frustrating, was the suggestion of the extended information that said they would require. If it's just them, then I'd consider switching banks, if everyone was going to require it, then I do wonder how anyone who owns a company ever manages to borrow money if they are in complex business situations.

eracode

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#2258168 14-Jun-2019 13:36

Benjip:

eracode:

.... except that approach would be less than 'full and open disclosure' and would land in him deeper strife with any bank if/when they find out. There are all sorts of fishhooks with this approach.

How so? You go through the online application process, it asks you your weekly income, and the name of your employer.

Are you suggesting you should give the bank your every personal detail, over and above what they ask for?

Well - every personal detail but not necessarily over and above what they ask for.

The OP says he has existing business, personal and home loan business with his bank. If he applies for a loan with another bank, he will have all sorts of hoops to jump through. Part of that will be the completion of a Statement of Personal Financial Position - which will need to disclose all the debt owed to the first bank along with details of any personal guarantees he has given to help secure any debt of the company. So then he hasn't escaped anything and going to the new bank won't have achieved anything - unless the new bank has more relaxed criteria. However to go to a new bank the OP will be effectively re-financing all existing debt. When banks are refinancing another bank, they look particularly hard at the loan application and the main question is 'why?'

If he doesn't disclose the other debt, then that's less than full and open disclosure, lying and maybe fraud. When you sign a loan application for a bank you need to attest that details you have given are full, complete, honest etc.

As I said - fishhooks.

Sometimes I just sit and think. Other times I just sit.

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