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If You Want Us To Gamble, You'll Have To Gamble, Too

To avoid pricey bank loans, negotiate a wager and agree on projections.


Suppose you've shopped your borrowing needs and decided that the lender you really want to work with is too pricey. You negotiate hard for an upfront rate cut, but the bank won't budge. Is there anything else you can do to persuade your banker to reduce your interest expense?

Probably, says Dean Treptow, CEO of First Bank Brown Deer, in Brown Deer, Wis.: try proposing a wager. "As bankers, we look at past performance. Customers, however, want us to consider future projections -- including things like new contracts that will bring higher earnings, or plans to reduce their leverage ratio. We'll say, 'Fine, but if you want us to gamble, you'll have to gamble, too.' '

Here's how it works: let's say the bank is offering prime plus 2%, and you want prime plus 1%. The bank makes the loan at the higher rate, but skims off the amount representing the one-point difference -- say, $10,000 -- and puts it into an escrow account. If you achieve the agreed-upon projections, you get the money back. For partial achievement, you get a partial return.

And for zero achievement? Not only would you forfeit all the money, but you'd be forced to concede that the banker was, in fact, right in the first place.

Last updated: Dec 1, 1988

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