Don’t let Doom Loop 2 get you!

Never heard of a  Doom Loop? Not surprising! But it can catch you too.

“Doom loop” is when banks get dragged into serious financial trouble by non-performing loans to governments that have grossly overspent. In the GFC it was solved by other countries bailing out those like Greece.

There is a similar doom loop created when Australian businesses & farms have the loop gently lowered around their necks by clever bank marketing of unaffordable loans. The borrowers, years later, get dragged into receivership or bankruptcy by those banks.

We converted GBAC  from a Chartered Accountancy firm to a bank loan consultancy when we saw the disaster unleashed when our politicians de-regulated banks. Bank profits and CEO pays have skyrocketed and Australians mostly pay a bit more for everything because they borrow for it or prices are increased to cover charges of “non-interest” lenders. Borrowers can lose everything they have spent decades working for

It is no fun for business and farm owners to suffer for years when caught in the Doom Loop. They usually work their hearts out to keep abreast at least of interest at penalty rates but then in the end are often sold up.

That is quite unacceptable. Moneylenders are the experts at assessing the ability of borrowers to repay loans. Borrowers usually only take mortgage loans once or twice in their lifetimes so they are nothing like as familiar with loan failure as the bankers. What really gets us is the way in which reputable banks lend into situations where it is glaringly obvious that the borrower is going to fall over sometime. The bank will have earned penalty interest for perhaps decades and then sells the borrower up because it has not all been paid, when the loan might even be double its original size due to that unpaid interest and charges. Current relaxation of Australian laws facilitates the creation of a Doom Loop.

The remedies are:-

  1. Use an “own broker” service like loanagram to convert bank charges into profits. It is not like a broker who is paid thousands of dollars commission by the banks. It costs only $250 and allows you to offer your loan business to a number of banks who will then compete for that business. Competition amongst banks gets you the most suitable loan at the best rates. It can also allow you to save thousands of dollars in set-up fees which would otherwise be used to pay the broker who introduced you.
  2. Have a professional loan application prepared to show banks that you are going to be just the sort of customer they want who will service and repay the loan in accordance with the contract. That makes negotiations more profitable.
  3. At the same time obtain a Loan Suitability Assessment to ensure that the loan is tailored to your business or farm needs. That is the key to having a loan that is easy to service and repay even when times get tough.
  4. For long term loans it pays to have a professional review every 5 years or so to ensure that the bank is doing the right thing by you. Far too often the loan is set up so that after a few years the bank can make changes without the borrower being aware of it.

If you want to check out anything to do with loans please feel free to give us a call at GBAC Advisory on 0428 417 496

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