Bank of America Severs Small Business Credit Lines — Are You Affected?

  • January 3rd, 2012
  • Dan Bischoff

Bank of America Severs Small Business Credit Lines -- Are You Affected?The LA Times reported this morning that Bank of America Corp. is severing lines of credit to some small businesses.

The article says Bank of America is “demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can’t pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had,”

Business credit is the backbone for many companies, and this move could crush a number of businesses. The story profiles Babak Zahabizadeh, who was told that his $96,000 debt must be repaid by Jan. 25, or pay it back at a higher interest that is nearly 10 times his current interest-only payment.

“I was like, ‘Dude, you’re calling a guy who’s barely surviving!'” Zahabizadeh told the LA Times. “My final word was that I can double my payment — but not triple or quadruple it. I told them if they apply too much pressure they’re going to push me into bankruptcy.”

Brian Moynihan, CEO of Bank of America, didn’t provide the exact numbers of those being affected, except to say “that it was not in the hundreds of thousands.”

This news comes after Bank of America was recently scrutinized for rolling out a $5 monthly debit card fee. Customers cried foul and Occupy protesters pounced. People took to social media to air grievances. Credit unions enticed people to move their money out of institutions such as Bank of America and into their non-profit unions.

Bank of America backed out of the $5 fee. It will be interesting to see what, if anything, happens with this move to sever credit, which may have much more serious affects on businesses nationwide.

Your Turn

What do you think of Bank of America’s move? Do you have a credit line? What would happen to your business if something similar happened to you? Do you have credit through Bank of America? If so, have you been told to repay your debts in full?

About the Author

  • Dan Bischoff

Comments

  1. I think that this is BOA trying to rectify years of “loosey goosey” banking and lending practices on the backs of individuals and struggling entrepreneurs who are struggling to keep their heads above water. Shame on you Bank of America.

  2. Yep. They kicked my butt 2 years ago. I had a $90,000 like with $65k out and they not only shut it off but turned it into a term loan. My payments went from $250 a month to $1100. Then they started holding inclearing checks and clearing the big debuts first… their policy changes cause ne to run so tight on cash I was bouncing checks (where there was unavailable funds) so many times I probably could have bought a car with the fees I paid. Shame on me. But shame on BoA too. They hurt my business a great deal.

    • $250 to $1100? That hurts, Vin. Thanks for sharing your story. How’s the biz doing now?

      • Well, this is happening to us right now. Our $90k loan matured in March and they tried working with us, but were increasing our interest rate so high we couldn’t afford it. They wanted our payment to go from $650 to $3000. We finally came to terms and we said we could do $1200. When we went to confirm it all, they said we owed 2 mo worth of finance charges PLUS a 1.6% origination fee, for a total of $3000.

        As of today, we’re simply leaving voicemails back and forth and I don’t know what will happen.

  3. BOA is not the only ones doing this. Chase did it to my business. I was left with no alternative and switch banks and pay off Chase. We had that line for 8 years and always paid our bills. Had one bad year and they could not pull it quick enough. How’s that for loyalty?? That is why I spent my time seeking alternatives. Instead of a bank credit line (which is limited) I started using PO financing to pay for my goods to sell a much larger volume. Yes, this gives me a lower GP%, but it raised the total revenues I was able to produce. I was no longer limited to just my line. I liked it so much I now work on the side for them (Hartsko Financial) to help other small businesses learn about what they can do for their business.

  4. We had a $75 K line of credit, we had drawn down approx. $42K and we were current and prompt with payments. We were notified that the account was frozen, increased interest rate, and would automatically draw down monthly payments from our checking account. They referred us to a credit counseling service that devised a repayment plan in accordance with there guidelines. It was accepted by 3 other lenders and rejected by BOFA. We closed our account with BOFA they contacted us and offered a principal discount of 10% for cash payment, which of course we could not meet.

  5. This is not a BofA problem. All institutions fell under new regulations n 2008, then 2009 changes only tightened the credit. All banks implemented the same policies and took similar actions. The Fed took action by enhancing the regulations knowing small businesses were going to suffer the wrath of the economy.

    All banks are under pressure to raise capital and limit risk by the Fed. That’s why they would rather have your property than your mortgage. That’s why they would rather having a loan than a revolving line of credit. So as the Fed prints more money in the name of our Government they are constricting banks functionality. Credit lines are becoming an obsolete concept.

  6. Banks are a bunch of thieves as well as the government.

  7. I am in the middle of negotiating a business line with BofA now. I have had a $100,000 line for 9 years. There is $72,000 out there and the bank wants payment in full by April 25. They have given me a couple of different options to convert to a term loan but of course there is a fee involved to convert and the interst rate is muck higher. Any feedback would be appreciated.

    • Hey, Tom. Sorry to hear it. Just off the top of my head, Lendio does have a partner that helps businesses negotiate terms and consolidate debt. Perhaps they can help you? Let us know if you want more info.

    • Tom, ours ($90k) was due Mar 25th. It’s now with the workout team as we couldn’t agree with their new terms. What happened on your end?

  8. I have over 20 years of Stellar credit, never missing a payment. 2 years ago Bank of America called me to say, they were lowering my available credit on all my 3 credit cards to just above what I owed on the cards. I had 3 cards with approx. 50% available on each card. Bank of America lowered the available amout to approx. 5% on each card causing my credit to drop 20 points. They keep lowering it everytime I make a payment. Today I received a letter from Bank of america stating they were lowering my credit availability again due to high percentage of debt to the available balance on the cards. Wow, smart bankers it was these wise decision makers that have caused the availability to decrease every time I make a payment. Maybe time to get all my documents together and write to the state banking dept. for a negative banking practice effecting our credit scores.

    • Same happening to me. They said my credit line has reached maturity and are calling it in. Trying to negotiate right now, doesn’t look good. They want me to pay 8 times what I have been a month. Googling to see if there are any answers out there, found you. I am not alone it seems. Anyone found a workable solution? Can’t believe this is happening to me, never a later payment on anything, never defaulted on a loan. What now?