Is your bank pressuring you to consolidate all your business loans under one roof? This article reveals your true business financing options.
Are you being strong-armed into putting all your financial eggs in one basket?
If your personal bank is pressuring you to consolidate all your business financing under one roof, you’re not alone.
We’re seeing an alarming trend of banks using aggressive tactics to force business owners into single-lender relationships.
Understanding your business financing options is your best defence against these high-pressure tactics.
Many business owners don’t realise they have choices. Consolidating all your business financing with your personal bank might sound convenient, but it’s a strategy that can leave you vulnerable.
Banks often make attractive promises about lower interest rates and simplified payments by wrapping it up into your mortgage, but they rarely disclose the hidden costs and risks of limiting your business financing options.
In this guide, I expose the pressure tactics they use, reveal why exploring multiple business financing options is crucial for your company’s future, and show you how to protect your business from forced consolidation that could cost you a lot more than you expect.
Key Takeaway: Smart business owners know that exploring several business financing options gives them better protection, more flexibility, and stronger negotiating power than relying on a single lender.
Business Financing Options
Banks often pressure business owners to consolidate all their business financing under one roof. They make it sound attractive with promises of:
- “Lower interest rates by adding it to your mortgage!”
- “Lower monthly payments by spreading it over your mortgage term!”
- “Simplified banking with everything in one place!”
But here’s what they’re not telling you…
5 Compelling Reasons to Diversify Your Business Financing Options
1. More Flexibility
Specialised expertise matters. Different lenders specialise in different things. Banks primarily focus on mortgages, while specialised lenders like Driveline offer expert knowledge in vehicle leasing and plant & equipment financing.
Using different lenders for different things enables you to access the best deals for each type of loan. Vehicle leasing is quite different to your home mortgage. As is working capital.
You wouldn’t hire one person to handle all your finances, sales, marketing, production, and engineering. Why limit yourself to one type of financing?
Your bank may pressure you to do otherwise, but despite what they say, you actually have a choice. They’re just trying to lock you in to only buying through them.
2. Reduced Risk
Risk can be reduced by diversifying your business financing options. If your bank is your only lender and they tighten their lending criteria, it can leave you in dire straits.
It happens. We’ve been seeing it a lot recently.
Building credibility with more than one lender creates a safety net for your business.
3. Scalable Growth Opportunities
Banks have internal exposure limits that can restrict your business growth potential. These exposure limits change over time too.
They tend to tighten when banks perceive lending to be riskier, which can limit your access to money to fund a growing business.
When everything is tied to your home mortgage, you’re essentially putting your personal assets at risk.
Maintaining more than one lending relationship provides more pathways for capital when you need to expand. It also helps you get quick and easy approvals when you need it most.
4. Better Deals
You’re far more likely to get a better deal when when you’re free to choose the most appropriate lender.
It’s easy to be lulled into thinking a better deal is all about the headline interest rate, which is the bank’s main pitch, but as the next point reveals, a lower headline rate can end up costing you much more.
5. Freedom of Choice
We’ve noticed an alarming trend over the past year: banks leveraging their power when customers want to refix or refinance their mortgage by forcing them into consolidating all their business financing.
The bank reviews customer’s business accounts and if they see financing from other lenders, e.g. leasing a ute from Driveline, they’re pressuring business owners to terminate those arrangements and wrap it up into the mortgage. Often at significant cost to the business owner.
What many people don’t know is that bank staff have quotas and are incentivised to lend more. Even bank tellers in branches have quotas and training on how to push the bank’s products.
It’s not being done because the banks have your best interest at heart. Quite the opposite.
And, being the skilled salesmen they are, they make it sound so attractive…
- “Lower interest rates by adding it to your mortgage!”
- “Lower monthly payments by spreading it over your mortgage term!”
- “Simplified banking with everything in one place!”
What they don’t tell you is what it costs you to comply with their request.
The Hidden Math: Why Mortgage Consolidation Can Cost You More
What appears to be a lower interest rate % can actually result in much higher $ costs when you factor in:
- Early termination penalties from existing financing agreements
- If the lease is still in the early stages, this can be a significant cost. The bank knows there will be early-termination costs, but they don’t tell you that.
- If you want to terminate your mortgage early though, they’ll make damn sure you know about THEIR early-termination fees!
- The true cost of spreading business purchases over a 15-25 year mortgage term
- Business owners might intend to pay the vehicle off over 3-4 years, just like their lease, but banks know this never ever happens.
- Once it’s on the mortgage it just becomes part of the regular monthly mortgage payments. This suits them because the longer you take to pay it off the more interest you pay, which means more income for them.
- The impact on your personal assets and borrowing capacity
- When banks push you to consolidate business financing into your home mortgage, they’re not just restructuring your debt – they’re fundamentally changing your financial position.
- They don’t tell you about the impact on your personal assets. Your home becomes collateral for your business expenses, any business losses could directly threaten your family home, future mortgage refinancing becomes more complex, and your ability to access home equity for personal needs becomes limited.
- They also don’t tell you about the impact on your borrowing capacity. Your mortgage borrowing capacity gets partially consumed by business debt, renovations and future property purchases become harder to finance, and increases in your credit card limit may be harder to obtain.
- They also don’t tell you about how it limits your business growth. Each business purchase reduces your overall borrowing capacity, future business opportunities might be missed due to reduced borrowing power, and emergency funding becomes harder to get when needed.
- Then there’s credit assessment changes. Your debt-to-income ratio becomes skewed, personal credit assessments now factor in business expenses, and your ability to separate business and personal finances is compromised.
Long-term Financial Implications
- Your personal financial flexibility is reduced
- Business expansion opportunities may be limited
- Family financial planning becomes more complicated
- Exit strategies and business succession planning are affected
- Retirement planning may be impacted due to tied-up equity
Risk Concentration
- All your financial eggs are in one basket
- Both business and personal assets become vulnerable to market changes
- A single bank’s policy changes could affect both your business and personal life
Taking Control of Your Financial Future
We’ve seen cases where financing a vehicle through a home mortgage resulted in effective interest rates somewhere in the mid-20% range when all costs were properly calculated. Yikes!
Our clients in this situation were just trying to get an interest rate advantage on their mortgage. But they felt compelled to go down the bank’s suggested path for fear they wouldn’t get their mortgage refix or refinance approved.
It was only after we ran through the consequences of early termination and loading up the mortgage with their business vehicle finance that they realised what was really going on.
If this is a scenario you can relate to, or you need some assistance understanding the consequences of spreading a new vehicle purchase out over your mortgage term, then give us a call.
If you have a friend in that situation, get them to contact us.
We’ll give you straight answers about what makes sense for your specific situation.
Remember: Your business deserves the flexibility and security that comes with smart financing choices.
