While we are sure these banking war stories won’t ring true for all CapitalQ Community Members, we know there have been a number that have had some frustrating banking experiences of late.
So we hope this post can serve both as a cautionary tale, while also helping other Community Members prepare themselves for coming experiences.
Banks in the Firing Line
The banks have been in the firing line of both regulators and politicians in recent times.
Between the Banking Royal Commission and massive fines regarding anti-money laundering breaches, there is no doubt senior executives at Australia’s banks have been losing a lot of sleep.
And as is the natural response, they are going to great lengths to alleviate any chance of future suggestions of wrongdoing, no matter the cost.
Civilian Collateral Damage
Accordingly, as is so often the case, it is Australia’s small business owners, investors and even home loan borrowers that are suffering from the fall out.
Customer Identification Going to Extremes
One of the most notable recent changes to the banking experience is the extraordinary lengths banks are going to in verifying who their customer is.
Probably easiest to accept are the efforts taken to identify the individuals involved in a banking matter. Multiple, current, verified identification documentation and original signatures are fair enough.
But the moment any form of non-individual entity is involved (ie. companies and in particular trusts) be prepared for a drawn out process and an examination that feels nothing short of invasive.
Despite persistent assurances of a primary individual’s control of, and ultimate primary benefit from, any structure, all potential beneficiaries are investigated and often required to be recognised.
We have seen examples where children are included as potential (but not practical) beneficiaries of a trust (which is very much the norm) yet regardless of they –
- having absolutely nothing to do with their parents’ business or investing affairs, and
- having no powers or even rights regarding those affairs, nor in many cases
- even being aware they are included as potential beneficiaries of a structure…
the parents are required to disclose the full names and dates of birth of those children (including adult children) and have them recognised by the bank as having a connection to the account and/or loan in question.
Efforts to point out the lack of privacy, and lack of authorisation from those children to have their personal details disclosed and recorded, have fallen on deaf ears and been met with a “like it or lump it” attitude.
Running Down the Rabbit Hole
Similarly, if your structure involves a series of entities, as is relevant for any number of legitimate commercial, tax planning and asset protection reasons, some banks are requiring investigations all the way down the rabbit hole resulting in significant delays, not to mention ongoing questions that often highlight a lack of understanding of how such structures work.
The good news here is some banks will accept a primary individual taking full responsibility for, and full primary benefit of, such structures. Putting a reasonable limit on the digging. But others, have shown zero commonsense in this regard.
Minutes Turn to Months
The results are what once took minutes, being the opening of a business bank account, taking at times literally months. And that is just a transaction account. Don’t even ask about the time taken to open business loans!
Though we hear both Macquarie and Commonwealth Bank are on the verge of offering new systems that are touted as being able to improve things dramatically.
Independent Advice Requirements
Banks have been requiring borrowers, and in particular those acting as guarantors for a loan, to seek independent advice regarding the contracts they are signing for some time. For the most part this hasn’t changed, though we note the independent advice appears to have become increasingly a compulsory requirement with an apparent reduction in the opportunities to waive the opportunity.
In respect to independent legal advice…
The volume of paperwork and the increasingly broad extent of the rights given to the lender has meant that the advice solicitors are now giving is often to ‘not sign the contract’ because it is the only way to protect themselves from a claim should a loss be incurred as a result of the loan. This is of course an absurd situation to be in.
Construction Finance Subject to Tougher Restrictions and Monthly Effective Audit
Securing construction finance has always been notoriously difficult and time consuming and the feeling is this continues to get worse in many cases.
Similarly, the role of Quantity Surveyors seems to be continually evolving with their assessments and sign offs taking more and more into account (not just the traditional assessment of how much work the builder has done and therefore can claim). They are increasingly both gatekeeper and auditor of a developers affairs including incidental costs of development and more subjective matters outside the scope of the primary construction contract.
We are not sure if this is a recent change or not, but the banks are allowing them to only sign off on work installed at the site, so costs incurred in preparation for installation, but not yet installed, are not being accepted as part of the builders claim!
One builder facing delays from payments by their clients due to bank hold ups recently said to me “little wonder builders are going broke all over the country”.
Interest Rates At All Time Lows, But Only if you Actually Ask
While it would appear the worm has turned when it comes to low interest rates, we hope you accessed the savings while you could.
But you had to take action to reap the true benefits.
Inquiries to bank managers about your interest rate will see an instant offer of a discount (but only if you ask).
Similarly, notifications of an intention to refinance with another lender are consistently being greeted with significant scope to improve the terms of existing facilities, which had not previously been offered.
Signing Formal Loan Documentation Doesn’t Guarantee Release of Funds
What we have not experienced before is that even where a loan has been approved, and the loan contract and documentation all fully signed, banks are still withholding funding until every single new box is ticked within their behind the scenes systems and processes.
Compliance checks and reviews performed by back office staff after the loan approval and document signing, has resulted in significant further delays and huge amounts of time wastage (not to mention stress and potential reputational damage for the borrower as they face delays in paying their supplies).
Documentation Shortcomings Identified AFTER Signing
As suggested above, despite banks issuing loan contracts and associated documentation (presumably having made sure all the paperwork and compliance checks were in order before hand) are then identifying issues ‘after the event’ and holding things up while they redo the paperwork (and deem the original void despite the formal execution by the borrower).