Step 3 Dealing with your priority debts

​Business overdrafts and loans

If your bank account regularly goes over any arranged business overdraft limit, interest and charges will be added to what you owe. You also run the risk of having the overdraft limit cancelled or not renewed when the agreement runs out. This can also happen if the bank suspects you are in financial difficulty, for example, if they see less money coming into the account than normal.

Extra advice:

security for business debts

If your bank asks you to provide security for an unsecured loan or overdraft (for example, your property), contact us for advice. Always check the interest rate and any arrangement fees that will be charged. If you miss payments on a secured loan, your property will be at risk.

If you lose control of your business bank account, it can be very difficult to manage your business and household finances. Unpaid cheques, direct debits and standing orders will make your debts worse. The bank may use money you pay into your bank account to pay interest and bank charges rather than to cover the payments you need to make.

You may find it easier to convert your overdraft into a loan. However, remember that you will lose the flexibility of the overdraft because your bank will only usually let you run your bank account in credit from now on. You will also have to make a monthly repayment on the loan. Make sure you can afford this. Also, check that the interest rate on a loan is no higher than your overdraft rate. Use your business and household budget sheet to show the bank you can afford the repayment.

If you cannot meet your current loan repayments or are in danger of going over your overdraft limit, speak to your bank and try to come to an arrangement. For example, the bank may let you pay back what you owe over a longer period. If you are able to, it is generally easier to deal directly with your own branch than with a central debt-recovery unit. If you are able to reduce the balance to within the overdraft limit, this may reduce borrowing charges.

If the bank threatens to close your account or refer it to a debt-recovery unit, contact us for advice.

Secured or unsecured?

Bank overdrafts and loans may be secured or unsecured.

Secured

Information:

limited companies

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 treated as a priority debt.


  • 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. You do not have the same rights as someone with a personal debt, like mortgage arrears, if the lender threatens you with repossession.

All monies charge

  • This is a clause in one of your agreements that gives the bank security for all of the debts you have with that bank. It means that any borrowing with that bank in the past, now, and in the future will be secured. All monies charges must be treated as a priority debt. You do not have the same rights as someone with a personal debt, like mortgage arrears, if the lender threatens you with repossession. Contact us for advice.

Unsecured

  • Loans and overdrafts are unsecured if the lender does not have any security. 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 for keeping your business running.

If the bank threatens to stop cheques and put restrictions on your account, contact us for advice.