Basic Borrowing Policy to Gain an Advantage in Bank Negotiations
The other day, I received a call from Y Bank saying, 'The loan your company applied for has been approved internally.' This is our first loan transaction with this bank. Phew, we finally made it this far. Currently, our company doesn't have any particular need for funds, but I wanted to establish a business relationship with this bank.
As a result of borrowing and repaying on the spot without any real strategy...
If I list our banks in order of the highest outstanding loan balance...
T Bank (Second Regional Bank)
K Bank (First Regional Bank)
K Shinkin (Credit Union)
M Bank (City Bank)
This is the current state. (Government-affiliated financial institutions are omitted for the sake of explanation.)
This is not a very good situation. The previous finance managers borrowed from whichever bank would lend to them at the time without any strategy, and repaid them sequentially.
■ Not a good situation: There are mainly two points
(1) Weak relationship with city banks
There has been no new borrowing from M Bank for over five years, and the outstanding balance is only decreasing due to repayments. We used to have loans from other city banks, but we paid them off, and the relationship ceased thereafter.
(2) Poor bank balance
The second regional bank has the highest outstanding balance, followed by the first regional bank.
City banks have the lowest.
Balance the loans so that the outstanding balance is 'City Bank > First Regional Bank > Second Regional Bank > Credit Union'
■ Future borrowing policy
Focus on city banks to balance the bank portfolio
(1) Ensure that loan balances are in the order of city banks first, followed by first regional banks, and then second regional banks. When borrowing new funds, primarily use city banks. If a good response is not obtained from a city bank, borrow from a first regional bank.
(2) Start a business relationship with a first regional bank that is large enough to rival a city bank.
Banks are driven by precedent. If there is no precedent, they follow what a higher-ranked bank has done.
■ Reasons for focusing on city banks in the borrowing policy
(1) City banks generally have lower interest rates compared to regional banks.
(2) It becomes easier to get loans approved by regional banks, and interest rates become lower.
* Second regional banks follow the first regional banks. First regional banks follow the city banks.
The comment, 'Bank XX (a city bank) did this much for us,' is effective with the representative (banker) at a first regional bank. That information is passed on within the bank and reaches the credit department behind the representative. As a result, loans become easier to approve, and interest rates become lower.
This time, we were able to secure our first loan from Y Bank, one of the largest first regional banks. This was part of our policy to ensure the 'City Bank > First Regional Bank > Second Regional Bank' balance.
The first transaction is a high hurdle. Once a track record is established and repayments are made properly, the hurdle for the second loan becomes lower.
I went to negotiate with a city bank where we used to have a relationship, but we had paid off the loan and had no borrowing since (the relationship had ceased), but the response was not very good. Since several years had passed since the relationship ended, it was treated the same as a first-time transaction. The hurdle has become high.
That is why I wanted to start a relationship with Y Bank, a leader among first regional banks that rivals city banks. I am glad that we seem to be able to start the relationship without any issues.
Phew. The improvements continue.