Q: How can I play one bank
against another to get a lower interest rate on my business loan?
A:
Now that the Fed has started aggressively cutting interest rates, it may be the
perfect time to see whether your bank is prepared to put its money where its
mouth is. No bank wants to lose a long-standing customer, and once you present
your bank with a competing offer, it may be more than willing to make a deal.
Robert Tonino, CEO of Breda LLC, a consulting firm that acts as a virtual CFO
for emerging companies, says the best way to get a lower rate is to contact a
competing bank that has just opened a branch in your area or a lender that
advertises heavily in your local paper or through direct mail.
A bank like this is probably hungrier for your business than the bank you're
doing business with now. Once you've made contact, get a quote from the new bank
on a loan exactly like yours in terms of size, duration and collateral. Then
bring the quote to your current bank and see what it's prepared to do.
Say that while you're happy with your current relationship, you have a duty
to your investors to obtain the lowest cost of capital, suggests Tonino. Use
your business model to show how the relationship will result in more business
for the bank. If your bank turns you down, there's always Plan B--the new bank
on the block.
Originally published in the May 2008 issue of Entrepreneur magazine.
Rosalind Resnick is the founder and CEO of Axxess Business Consulting, a New York consulting firm that advises startups and small businesses. She is also author of The Vest Pocket Consultant blog.