Are You A Rate Borrower Or A Relationship Borrower

Posted December 18, 2017

It seems like everybody does it, because I see this all the time. The typical go-to strategy for obtaining equipment financing is “rate borrowing”, which focuses on negotiating the lowest interest rate to the exclusion of all other considerations. No sooner do I have one foot in the door of any establishment that I hear that familiar phrase, “so, what’s your rate?” People think it’s their job to get the best rate, and that they’ve done well if they can wrangle the lowest number out of me. I’m a big fan of people doing well in their jobs, so I support people who try to make the best deal they can. But what if I told you that getting the best rate isn’t always the best value?

The Bank, the Broker, or Me

To illustrate this point, let’s examine the three types of lenders you can deal with. One is your bank, one is an equipment finance broker (who has promised he can get you the best possible deal and then sell your loan TO THE BANK), and the third is a relationship lender, like myself, representing CCG. Often I’ll begin our conversation with a simple question, “Do you do rate borrowing or do you do relationship borrowing?” At this point people usually have no idea what I’m talking about, so I go on to explain the Bank, the Broker, or Me.

The Bank (That’s a Relationship?)

Imagine it’s late afternoon on a Friday, and your bookkeeper comes in and says, “Our receivables are blocked up. We’re not going to get that big check, so that means we’re going to miss our loan payment.” You call your bank, but good luck reaching them at 3:00 on a Friday afternoon. The banker gets back to you on Monday, if you’re lucky, and about three weeks later, they “solve” your problem with lots of documentation, a laundry list of questions, and a pile of paperwork you’ll need to provide. That’s their definition of having a relationship, but does this feel like a relationship to you?

The Broker (That’s a Good Deal?)

The broker can’t help you for two reasons. First he is not loaning you the money, some third party you do not know is. So after he refers you to the real lender, that lender needs to get to know you now. The same old game ensues. A lot of conversations, another pile of paperwork, and about three weeks later, you might get your problem solved. It’s likely going to be a little more expensive then you were originally told, or it’s going to involve you signing off on new commitments. What happened to that good deal they promised you? Brokers don’t lend their own money – how can they be invested in your success?

Me (That’s a Relationship!)

Your third option is, you pick up the phone (now maybe it’s 6:00 Friday night) and you call me, because I put my cell phone number on my business card. I answer your call, after hours, and you explain what’s going on. I’ll ask, “Is this problem long-term or short-term?” You reply “It’s just short-term.” I’ll respond, “Okay. Well, how about we hold your payments for 45 days. You’ll have to pay the interest, but this will give you some time for receivables to catch up. Within 45 days, call me or my portfolio manager – I’ll give you her name. At that point, we can get back on track with your payments. Will that work for you?” To this you say “Yes, that will be great.” We make this arrangement right then and there, over the phone, with no need for you to come into my office. THIS is relationship borrowing. But you had to have the foresight to resist the temptations of rate borrowing and pursue that relationship that you know will pay off in the long run. Or if your problem is long-term, we sit down together and discuss the issues and put together a plan that will work best for you under the circumstances and move it behind us quickly.

At First, Things Seem Good

It’s important to keep in mind, whenever you’re shopping for equipment financing, things seem to go well in the early stages. Everyone’s on their best behavior when they’re trying to do a deal. The dealer who’s selling the equipment is on his best behavior. He’s going to tell you whatever you want to hear to get you to buy his equipment. The typical “rate” lender is going to tell you whatever you want to hear to get the deal, for example, low rate or long-term. So he’s on his best behavior, and of course, you’re on your best behavior because you want to get the money to run your business.

When You Run into Roadblocks and Bumps

In the scenarios I just described, there are no real “relationships.” These are simply people who are managing the dialogue to close the transaction, and when the deal is done they’ll be gone. The time you find out whether you have a relationship with your lender is not when you do the deal, but when you run into the inevitable roadblocks and bumps every business faces as time goes by. And that’s how we differentiate ourselves at CCG, we step up and lend a hand when you need us most. We’re here to help you grow, but we’re also here to help when things don’t go exactly as planned. Having a relationship in place ensures that your road to success is a much smoother one in the long run.

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