Salvaging Millions
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 National Bank

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 Federal Reserve.

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 and paperwork.

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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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 He can be reached at 5940 Eden, Haltom City, TX 76117, or 817-834-3625 ext 6#.