It is not uncommon in the world of finance to find out many years later that the business loan that was set up for you wasn’t actually followed through as intended with the lending institution.
Several businesses use bank finance to support their working capital so as to ensure business activities run smoothly and the lack of adequate funds does not affect the businesses’ ability to make a profit.

Several businesses use bank finance to support their working capital so as to ensure business activities run smoothly and the lack of adequate funds does not affect the businesses’ ability to make a profit.

Businesses take into account that the charge of interest levied by the bank on their borrowing will eat into their profit, but in order to ensure business continuity and to support ongoing projects, they accept that fact and look at turning a lower profit.

However, in more than a few instances, the interest charged by the bank turns out to be more than the agreed percentage. This has a huge impact on the profits of the business and its ability to repay the amounts borrowed with interest. The business ends up in a cycle of borrowing money to cater for working capital and covering its monthly bank installments with the same working capital.

The interest element balloons up yearly until the business is no longer able to pay its loans, or turn a profit. The bank is not always a friend in need.

Since the interest capping introduced in September 2016, banks were forced to put a ceiling on the interest rates they were charging their customers. Before the interest capping the rates were going as high as 25% per annum and after the law came into effect, they got capped at 4% above the base rate which currently stands at 9%.

However, either due to bank errors in calculating interest, misrepresentation of interest rates, and calculation of penalty interest which in my opinion beats the purpose of the interest cap, some banks end up charging much more than they should.

Many accountants don’t actually calculate the interest charged to verify it is correct as per the rates agreed on the facility documents. They simply account for the interest and post it in their books to recognize the interest charge.

It is therefore a responsibility of the directors of the business to ensure they take adequate measures not to fall victims to overcharges of interest on their loans. 

At Audit Focus Advisory, our work is to review, analyze and recalculate the interest fees charged on our clients by the bank and confirm that the amounts deducted from the account are actually matching with the amounts calculated.

Once an overcharge is uncovered, we then advise the directors on what action to take. This can include informing the bank of the overcharge and if nothing is done, filing for a court order instructing the bank to recalculate the interest charged.

Hiring an expert witness to give clarity to the court for the overcharge can come in handy as well.