Dear Jayme:

I hate dealing with banks. I have a successful construction business, but every time I go to the bank to finance a project, I walk out feeling confused and not sure I got a decent deal. I have to borrow to finance my business and I feel trapped. What can I do?


Dear Ernie:

You’re not alone: Lots of otherwise capable and confident people feel powerless when they go in to borrow money. People get psyched out by banks because banks work hard to psyche people out. They create an environment that makes you feel small and powerless—fancy buildings, impressive titles (everyone’s a vice president) nice furniture, pricey suits, ominous loan committees and arcane terminology. These things don’t happen by accident. As a result, many people give away their power when dealing with banks. But you don’t buy the hype at the hardware store, so don’t buy it here! Remember:

  •     Banks must make loans: They’re under continuous pressure to bring in new business. No loans, they go broke.
  •     A bank is no different than your lumberyard: They just sell a different product.
  •     They’re not all alike: There are great, mediocre and evil banks.
  •     They’re no smarter than you are: How many of them built their own business?

Maintaining your power:

  •     Have them come to you: You’ll be amazed at how different you’ll feel with them in your office.
  •     Shop around: Pit one against another (and let them know it).
  •     Know your strengths: How much have you previously borrowed and repaid? What are your planned money purchases? How much do you have in savings, checking, CDs and investments that a bank might like to have on their books?
  •     Do your homework: Have your project researched and in a sharp presentation format. (Have lots of data. They love numbers.) If you clearly know your stuff and have covered every contingency, you have the power. Go in like a Gomer with some scratches on the back of an envelope and you’ll be treated like one.
  •     Know the market: Find out the going rate for money around town. If your bank won’t give you market rates or better, go elsewhere.
  •     Ask for what you want: They’ll always pitch a full price deal with conditions that slant in their favor. Don’t buy it. Be prepared with your own requirements. Feel free to reject any of their conditions, and put in your own (just because it’s on their contract doesn’t mean you can’t cross it out). You won’t get everything you want, but you’ll get way more than you thought you would.
  •     Go for extras: Have them throw in free checking, free wire transfers, free stock transactions, tax preparation, trust services, whatever. But do it up front as a condition of the deal, not later.
  •     Ads are for suckers: The sign that says “5 percent on three-year CDs” means nothing. Lots of customers get loans well below (and deposit yields well above) advertised rates, often just by asking. You don’t pay sticker price at the car dealer, so don’t do it here either.
  •     Volume and reliability mean power: You’ll get a better deal with higher volume and a longer record of paying your accounts on time.
  •     Talk to the new kid in town: A new bank is going up every ten minutes, and they’re usually more willing to work for your business.
  •     Stick with medium-sized banks: The big ones are run by corporate drones, by the book and with lots of committees. They’d much rather ignore you and only do $50 million loans. Mid-sized, regional banks will be more interested in you.

 Banks buy money wholesale and sell it retail. They’d like you to believe it’s more than that, but it isn’t. If you do the things I’ve suggested and your bank still acts like they’re doing you a big favor to finance your projects, find yourself a new bank.  



Construction Business Owner, July 2007