Note: everyone’s circumstances are different. These are just general hints. To check what is good for you please consult your accountant or a GBAC consultant
Get the right loan for you at the time!
Borrowers have a tendency to stick with the bank they know. Up to 1987 that was a good idea. The bank manager knew each customer and was as much a financial adviser as anything. The manager would rarely lend any customer into trouble, was not paid very much, but was greatly respected in the community. Banks were regulated in their behaviour by government so that they served Australia and Australians. De-regulation by politicians in the Hawke/Keating era changed all that.
Profit gradually dominated bank behaviour from then on and has led to a stratospheric rise in bank profits with bank CEOs being paid up to $1 million a month. It has also been catastrophic for many bank customers. Every dollar of CEO pay and bank profit is a dollar lost by a bank customer. The Royal Commission discovered the extent to which banks have deliberately lied, cheated, abused and defrauded their loyal customers.
Hint number 1 for turning debt into profit is to get the right loan in the first place. To do that a borrower can invite every possible bank to offer their best loan. In 1987 I invented the Moneygram system for making that easy and we have refined it since. Most farmers look for quality stock, hay or seed before price, but do not apply the same rigour to loans. It is only later on that many discover flaws in their loan deal. It is each term in the loan contract, not just the rate of interest, that is important. Many lawyers do not know what to look for in that respect. It takes a knowledge of accounting and farming to to that.
One GBAC client was given a 15 year loan to refinance a debt secured by a mortgage over two of his farm properties. When the government caused a crisis 6 months later and livestock could not be sold to cover planned loan repayments and farm expenses, the bank “kindly” gave him a 10% increase in the loan, but insisted on a new contract for the whole amount combining the old and new loan. Without drawing it to the borrower’s attention, the bank slipped into the middle of the contract a clause requiring one of the properties to be sold within 12 months.
Even if they had seen that clause the customer could not have refused the revised contract without defaulting given the prevailing circumstances. The loan money had been spent. Nobody would have refinanced at that time in that climate of financial fear on farms. The bank would take the proceeds to clear the mortgage on that block.
What a surprise for the farmer to discover that he had inadvertently agreed to sell his largest property, which would make the remaining debt very difficult to service!!
We have seen different banks all around Australia treat customers like that as profit became far more important than the lives of the borrowers and their families. Make sure the contract you sign gives you the best possible loan.
The next hint, No 2 will be about what should and should not be financed by debt.