As an entrepreneur you can be confronted with a bank that suddenly asks for extra security or even cancels the business credit. Is that allowed just like that and what can you do about it? Increase your chance of credit with our tips.

The bank has the contractual right to immediately terminate a credit agreement if you, as an entrepreneur, do not comply with the agreements you have made with the bank, for example with regard to payment of interest and repayment. But banks must also adhere to the concluded contract. So they cannot just unilaterally cancel the agreement.

Banks may be forced to terminate a credit

The consequence of the economic crisis in combination with the introduction of the Basel III Convention was that banks have started to look more critically at the outstanding loans, now that the banks are forced to strengthen their balance sheet with extra equity capital and (or) better security on the loan portfolio. What does this mean for you as an entrepreneur in practice?

Example

An example from a number of years ago concerns the announcement of the Deutsche Bank that

she was going to cancel 18,000 credits because the credits were loss-making. But is that possible just like that? There is an agreement between you and the lender, right? We have delved into case law.

In 2009, the Court of Appeal in Arnhem established nine indicators in its judgment “Rabobank / Aarding”, on the basis of which the legal validity of the cancellation of the credit will have to be tested. Important factors include a significant decline in creditworthiness and (or) a significant increase in bank credit risk, as well as the behavior and reliability of the borrower, as well as the degree of timeliness of information provision.

Bank duty of care and liability for damages

In daily practice it is important that you stick to the agreements you have made with your bank. In that case, the bank cannot simply cancel a credit, liability for damages due to breach of the duty of care is lurking.

Inform your bank well and in good time

It is important that you provide the bank with information at an early stage and that you keep the relationship good, so that the bank cannot cancel the credit (with impunity). Where you are aware of a deterioration in the business situation and (or) other important developments that could possibly have an effect on the creditworthiness of your company or whether or not you are able to pay interest and repayments, you must contact the bank of this as early as possible.

The (repeated) late payment of interest and repayments may mean that the bank will either be able to limit the credit margin or cancel the credit. The term of termination is often a point of discussion and a point where profit can be made. In case law a period of three months is considered reasonable. This is often a short term to realize refinancing, but a longer term than the banks in the first instance use at cancellation.

Tips:

• Keep your bank properly and timely informed;
• Always object in writing to a cancellation;
• Reasonable repayment term in case of a lawful termination is three months;
• Friend your banker!