Courting a banker with the right experience
This is the sixth in a continuing series, co-authored
by Ron Sturgeon and Greg Morse, founder and president of Worthington
Ron: What about a banker’s experience? What
kind of banking experience should they have?
Greg: They should have been a banker for
at least five years. But you don’t want them to have too much
experience, either. If you’re planning for the quarter century,
not the quarter, you need a banker who’s going to be around for
a while. You don’t want someone who’s too young and green, and
you don’t want someone who’s about to retire.
Loan to Deposit Ratios
Ron: You also definitely
want to understand the bank’s loan-to-deposit ratio. Say a bank
has $20 million to loan, and it’s only loaned out $10 million.
That means it has a 50 percent loan-to-deposit ratio. Banks don’t
make money by not loaning out their money. So then they loan
the other half to the Federal Reserve or to someone else at a
low rate. But they sometimes only make below one percent at the
On the other hand, if a bank has $100 million
to loan, but it has loaned out $110 million, it has too many
loans for its deposit base. A bank with a loan-to-deposit ratio
of less than about 70 to 75 percent probably wants to make more
loans. But after 90 percent, it probably doesn’t. So, as a banker,
what would you say is the loan-to-deposit ratio potential customers
should look for? All banks have a legal loan limit; it’s the
most they can lend any one client. If your loan is big, ask about
the bank’s loan limit.
There is no reason to discuss a loan that
is too big for the lender. Also, since bankers are greedy (aren’t
most of us?), they often will consider a loan larger than their
limit. They accommodate this kind of loan by selling off part
of it to another bank. Such an arrangement is called a participation.
You should really try to avoid being part of such a deal, because
then you have another lender looking at your stuff, making requests.
The original bank will manage the relationship, and wants you
to believe it doesn’t matter, but don’t kid yourself. The first
bank will have to field requests from the other lender about
your relationship and that means you will have more oversight
Greg: I would say that a good sweet spot
is between a 70 and a 90 percent loan-to-value ratio. That way,
you know they’re in the lending business, but they aren’t loaned
out. Once you find a bank with a ratio over 70 percent, you know
they’re in the business of lending money.
In our December column, we will explore ways
to expand your banking relationships.
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Remember, only you can make BUSINESS
Ron Sturgeon is past owner of AAA
Small Car World. In 1999, he sold his six Texas locations, with
140 employees, to Greenleaf. In 2001, he founded North Texas
Insurance Auction, which he sold to Copart in 2002. In 2002,
his book “Salvaging Millions” was published to help
small business owners achieve significant success, and was recently
reprinted. In June 2003, he joined the new ownership and management
team of GreenLeaf. He also manages his real estate holdings and
investments. You can learn more about him at WWW.autosalvageconsultant.com
He can be reached at 5940 Eden, Haltom City, TX 76117, firstname.lastname@example.org or
817-834-3625 ext 6#.