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What's the best strategy for borrowing money when interest rates are
on the rise? Get more bang for your buck by shopping for the perfect package
of competitive rates and value-added services.
Or, to put it in terms everyone can understand: strike a balance between
money and love.
First, the money. Rates on small commercial loans - those under $1
million - have been rising steadily, reaching an average of 9.25% in the
fourth quarter of 1999, according to the Federal Reserve. And with the
Fed in an inflation-fighting mood, chances are they're headed even higher.
There's not much you can do about it. Most reputable lenders won't
vary much in terms of price, says George Gardes, director of small-business
banking at Atlantic Bank of New York. Thanks to the pervasiveness of credit
scoring, the deal you're offered at one place is not likely to differ much
from what's offered elsewhere.
Still, if you're absolutely determined to get the best price possible,
check out a loan-auction site, where you can submit your financial information
in one shot to a variety of financiers. LiveCapital.com, for example, works
with about two dozen lenders and handles 500 applications each day.
Don't get your hopes up too high. Any discount you find is likely to be
small, a fraction of a percentage point at most. Still, the auction sites
are a good way to satisfy your curiosity about loan prices without submitting
dozens of separate applications.
Now, on to love. Just because they won't lower their prices, it doesn't
mean that banks don't want your business. They do want it -- badly. Nearly
70% of them have increased their small-business sales forces, according
to the Consumer Bankers Assn., and 90% are increasing the number of specialty
products they offer. If rates are rising, so is competition, so you should
expect your bank to woo you with all kinds of other goodies. Think of it
as the financial equivalent of chocolates and flowers -- a basket of financial
services at a reduced cost or even for free.
Rule of thumb: the more business you give the bank, the more the bank
should give back to you, says Atlantic Bank's George Gardes. Ask about
free checking accounts (for both your business and your personal accounts)
and access to so-called "sweep accounts," which automatically move excess
cash from a low-yield checking or savings accounts into an account that
bears a higher rate of interest. Many banks also offer their small-business
customers free on-line banking and retirement planning. Other services
to inquire about: free or reduced-cost lock-box services; overdraft protection;
tax advice and preparation; and other accounting services.
Many banks also have begun to offer discounts on things that have nothing to do with banking -- such as shipping or office supplies. They can provide significant cost savings. "This goes back to the old days when banks used to give you toasters for opening accounts," says Rich Parlontieri, president and CEO of ebank.com, an Atlanta-based Internet bank which specializes in entrepreneurs. What's the small-business version of a toaster? Anything from insurance and gift certificates to on-line retailers to marketing advice, cheap airline tickets and help buying a new car.
Before you say "I do," consider how tailored these extras are to the
needs of small businesses, suggests Butler. Travel vouchers are great,
but it might be more important to insist upon access to human
resources and e-commerce consulting instead. Whatever you get, you should always
expect more from your loan than just a pile of cash. For a struggling entrepreneur, sound advice and reliable information can be almost as important as low prices. In commerce, just as in love, be careful not to give your heart
to just anyone.
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