This is the 11th in a continuing series of articles from Ron’s newest book, Getting to Yes with Your Banker, which includes 93 secrets you likely didn’t know about dealing with your banker. Please visit the Recyclers POWER SOURCE web site at www.rpowersource.com to see previous articles. Presented in a Click and Clack format, from an entrepreneur’s and a lender’s perspective, the book is co-authored by Ron Sturgeon, a serial entrepreneur, and Greg Morse, founder and president of Worthington National Bank, a community bank with four locations throughout Tarrant County.
The book is packed with tips and advice about how to choose and get along with a banker, what your banker wants to see and other valuable tips for both start ups and existing businesses from a banker’s and entrepreneur’s perspective. Today’s article discusses how to keep your bank honest.
Getting What You Want, How You Want It
Ron: Once I have an established relationship with a bank, I can take my loan to one lender and let him or her look at it. Then, if I don’t get the rate I want, I can go show it to somebody else. However, I’m not doing that over something as small as a quarter point; that’s not a good enough reason to shop a loan, and banks hate people who fight over a quarter point. If you weren’t going to be able to make the payment at 7.5 percent, it’s not going to make much difference to go to 7.25 percent!
Greg: A lot of it, too, has to do with having a more mature company. When you’re more established, you’re in a better position to shop a loan around to more than one bank.
Ron: I have a really good example of how having more than one bank works and why it makes sense. In my early years in business, we had a junkyard and used to pull the engines out of junked vehicles with what was called a pole truck. It looked like a wrecker, except that it had a long pole with a winch at the end that would let you lift the car up and get underneath it to take it apart.
Someone mentioned that using a forklift would make the job a lot easier. So I went to the bank and said I wanted a loan to buy a forklift. I explained what I wanted to do — using a forklift like that was kind of a new idea at the time — and how it would help my business.
Well, the banker didn’t agree. He gave me a big bunch of crap about it and told me I didn’t need a forklift. This is one of the problems that businesspeople run into. Bankers shouldn’t be interested in how you run your business. If you do have a banker who’s that concerned about how you’re running your business, and you’re getting good results, then you have the wrong banker.
Anyway, my banker finally did finance the forklift — and it was wonderful! It was such an innovation for our business; and it was saving us time and money, so within a few months I wanted another forklift.
I went back to the bank and my banker said, “Well, what the heck, Ron? We just financed one forklift!” He wouldn’t do it. Even though it was good for my business and was saving my company money, he wouldn’t do it.
So I went to another bank and got the loan. They didn’t know I already had a forklift and weren’t concerned about anything except my ability to repay. And today, with the banking system so seized up, I would say it’s even more important. The bottom line is that you need more than one bank. The bankers may not like it, but it’s a reality.
Greg: That also keeps the two banks honest from a price standpoint. If I know that Ron can go to his other bank, it’s going to keep me honest. The right bank wants you to do well, and you should want your bank to do well so it can stay in business.
Ron: And you should keep in mind that this isn’t just about getting a little bit shaved off your loan rate. I don’t want to be that type of guy, and nobody else should be, either. I want to be the guy that when I walk through the doors, the banker points at me and says, “We make a lot of money off that guy, and he is a really good customer.” If you’re the guy who is always busy trying to save a quarter point, you’re never going to have that kind of relationship with your banker. I am always amazed though with the consulting clients I am helping that get myopic about the interest rate, losing sight of the importance of doing a deal. Without a deal, no one is going to make money. If a point of interest is the difference in the success of your business, then your business isn’t strong enough.
Greg: If someone calls our bank and asks for our rate on a CD, we ask if they’re interested in rate or value of the CD because it’s not just about the rate. Here, we’re going to know our customers and their kids’ names and their dogs’ names. You can pick up the phone and call us. We’re not the highest price and we’re not the lowest price, but we’ll know you.
Ron: Why should I care if you know my dog’s name? How does that benefit me?
Greg: Because it’s about the relationship. It’s personal, it really tells you we care about you; it says you aren’t just a number with us.
Ron: Greg likes the BALD Rule. Ideally, everyone should have four people that they can call on for advice without fear of being billed: a Banker, an Accountant, a Lawyer and a Doctor. It’s important to cultivate a personal relationship with members from each of these professions — and if you haven’t already created one with your banker, this is the time to start.
Next time, we will cover banking as a contact sport.
Remember only you can make business great!
Ron Sturgeon, business owner, consultant and peer bench marketing leader, combines over 35 years of entrepreneurship with an extensive resume in consulting, keynote speaking and business writing. Ron can be reached at 5940 Eden, Haltom City, TX 76117, 817-834-3625 or by email at rons@MrMissonPossible.com.