New Loan Contract Signed – Are these legitimate concerns ??

Hi All,

I'm wanting to know your thoughts on a new Loan i've had the bank draw up for me…some of it doesn't feel right and given I'm new to dealing with banks I'm wondering if I'm being burnt…

Apologies up front for the length of this post, I want to provide the detail needed to assist with responses…

My Current Situation:
–  NAB Choice Package
–  $200k P&I Loan (started banking with NAB in March this year)
–  Property Purchase Price $225k
–  Reno Expenses so far $20k (Kitchen, Bathroom, Electrics, Gas/Water Plumbing, + misc work)
–  Reno not yet finished, therefore not in a state for new 'revaluation' and has only been revalued at purchase price ($225k)
–  New IO Loan of $50k requested to assist with Sub-Division and External Reno's

The additional $50k has been approved and today I went in to complete the paper work (servicing the additional loan is not a problem). 

I was initially shocked to be told there would be a $700 establishment fee due to it being a business loan not a personal loan.  I agreed to accept this and moved through the contract.  I was then told that the interest rate would be 8.8% rather than the 5.8% i'm paying for my home loan.  Seem's like my Choice Package doesn't cover as much as I thought !!

When I weighed it up, I needed the loan ASAP to progress with my sub-division so I accepted their conditions (I've got some large Sub-Division bills due early Jan)…they basically had me by the balls and knew I needed the cash anyway…(plus i'm new to banking with them and I know I need to prove my worth).

Here's the catch that has raised some of my concerns…after speaking to my bank managers associate, a little more information came through…

Firstly, as soon as the money is draw down into one of my accounts I'll be paying interest on it.  What I wanted, and thought I was getting, was a loan that sits there, not accumulating interest, until it is used – basically acting like an offset (but i've been told I can't have an offset with a IO Business Loan).

Then as we talked, she spoke about the loan needing to be paid back within 6 months.  When I signed the contract this was not mentioned, nor was it something I wanted as my entire project will take longer than 6 months (2 months on remaining Sub-Division, 6 months for build, 1 month settlement)…Unfortunately this is my error, the payout date was detailed in the contract, just under the loan amount and I missed it !!

The associate was helpful in explaining that going over this period shouldn't be a problem as we can just draw up another loan in 6 months time (free of charge) to help cover the additional time needed before my profits are realised (eg: newly built house is sold)…

Finally, I've requested the cash be put on hold for the time being for 2 reasons (1 – So I dont pay interest on it.  2 – Because I need to research this situation a little more – hence my post here !!)…

Now that the scene is set, here's the Q's that are playing on my mind:

1.  Are Business Loan's typically more expensive/have higher interest rates than Personal Loans ??
2.  Can you have IO Business Loans with Offsets (or set up so you only pay interest on the cash you use) ??
3.  Are there any problems with drawing up another loan in 6 months to cover the addition time needed before profits are realised ??
4.  Can I tear up the contract, even tho it's been signed (considering I actually haven't received any of the funds yet) ??
5.  Am I being paranoid, is this just a typical business loan transaction ??

I feel that I'm building a good relationship with both my Bank Manager and his Associate, and I'm sure they're just doing what they need too – being cautious gets the better of me sometimes and I'm just wondering if I should have these concerns ??

Thanks in advance for your input all, again apologies for the length of this one

Hope you all have a great Christmas 

Cheers,

Darren