Bank of Queensland doubled the monthly repayments on a business loan without telling a franchisee couple, forcing their business into liquidation, the financial services royal commission has heard.
In 2012, Suzanne Riches, an Adelaide school teacher, and her husband decided to buy a franchise to be partly funded by an inheritance he had received.
After looking around for a time they settled on two Wendy’s fast food franchises in Adelaide’s Marion shopping centre. The businesses were operational but there was one problem: their premises were on very short leases.
One was due to run out in September 2012 and another in January 2015. That prevented the Commonwealth Bank lending to them because the short leases cast doubt over the longevity of the businesses.
Get business news first
Sign up to SmartCompany’s daily newsletter
So the Riches went to Bank of Queensland, which came to the party and offered them a deal that looked like this: they could borrow $280,000 at 8.4% interest (remember rates were high in 2012) for seven years and make monthly repayments of $4420.
Mrs Riches pushed the bank manger at the original meeting. “I remember asking two or three times, and specifically saying, ‘Will the Bank of Queensland be able to supply a loan for us?’ To which he answered, ‘Yes.’”
“On the basis of that, I then asked again, ‘So I can make an offer on the two Wendy’s outlets?’” Mrs Riches said. The answer was again positive.
Mrs Riches ran the deal past her accountant along with the franchise agreement and it all added up so they signed up with Wendy’s. Her husband, with experience in hospitality, would work the business while she remained a school teacher to “cover the mortgage and family living expenses”.
The bank manager assured them things would be okay with the finances but as the settlement date of October 8 2012 dawned they still hadn’t seen the loan papers from the bank.
That put them into default and “interest was charged each day over the settlement date,” Mrs Riches said. Eventually, a week later, a final letter of offer appeared from BoQ which included a devastating change to the loan conditions.
The term of the loan was cut to three years and the monthly repayments had gone up to $8696 a month.
“I was alarmed as the amount of the repayments had about doubled,” she said.
They were under enormous pressure with the default interest building up and the delay meaning they had not had the shops over a vital school holiday period.
“It means we missed out on $40,000 revenue,” Mrs Riches said.
Their accountant told them the new figures meant the business was not viable but they felt they had no choice but to go ahead. The initial delay in settlement had meant that a cooling off period provided by Wendy’s had expired.
Counsel assisting Eloise Dias asked if she had signed up to the loan.
“Unfortunately, yes. I felt I was between a rock and a hard place,” Mrs Riches said.
The business couldn’t work. “I tried to make the payments whenever possible, but it was very, very difficult to make those repayments,” she said.
Eventually the Riches gave up the businesses in mid-2015 and their company was placed in liquidation. To pay their debts the couple had to sell a coastal block of land near Adelaide and remortgage their family home.
Bank of Queensland executive Douglas Snell will be questioned about the issue on Thursday.