Banking: Ways to Keep Costs Low
Large corporations do an excellent job of negotiating for deep discounts on commonly used banking services. But small and growing companies often don't realize that they can win similar price concessions themselves.
Consider Tom Novak's experience. Novak, the president and owner of Aries Manufacturing, in Schaumburg, Ill., a $6-million manufacturer and distributor of wholesale cellular-phone and paging accessories, was desperate during his start-up phase, back in 1991, to achieve any kind of banking relationship.
"I went to a local bank and managed to get a $15,000 line of credit, using my home, my car, and a relative's $15,000 certificate of deposit as collateral," Novak says. But the relationship was built on mistrust. "I'd ask my loan officer again and again to come out and see what we were doing. But his attitude was 'I don't care what you're doing. All I want is for you to make your loan payments."
Novak quickly started networking through his growing customer base to find a new banker. "Midwest Bank & Trust, a Melrose Park, Ill., bank, was willing to give me a $65,000 line of credit in return for a lien on our inventory and, of course, use of the CD as collateral."
At that point, Novak didn't bother to haggle over prices; his first goal was building a quality relationship with his new banker. "I wanted to prove our creditworthiness. I'd talk to my loan officer every day and keep him informed about everything that was going on in the company."
Novak is convinced that the best way growing companies can negotiate for lower rates is by demonstrating their attractiveness as customers, rather than by asking for discounts. "We've proved our growth potential, we've lived up to our banking covenants, and we've made our loan payments on time. And in return, often without our even asking for better rates, our banking costs have decreased."
The proof is in Aries's monthly bank statements. "We don't pay for any of our corporate-checking services," Novak notes. Meanwhile, "our credit line -- which has now grown to nearly $1 million -- is down to prime plus one-half a point, from prime plus two points." Because he's been so satisfied, Novak also hired Midwest to administer his company's new 401(k) plan. "I've also got my personal car loan and home mortgage at the bank -- both at wonderful rates, too," he says.
Novak's conclusion: "Some business owners might think you've got to go in and beat up your banker about rates from the beginning. But I believe your company should earn its rates -- and we have."