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How to Negotiate the Most Favorable Financing Deal

Part of the fun of working at Meridian Associates is seeing the wide variety of financing terms jobbers across the country are able to obtain. Although there are regional differences in interest rates due to the degree of bank competition, often negotiating skill has as much or more to do with rates.

Owners often think they should personally negotiate all financing for their company. Even if an owner is a master negotiator, this tactic may leave the company with less than the absolute best deal. Why? Because they’ve lost a key negotiating point, the ability to defer to a higher authority for final approval.

To demonstrate this point, think of a when you were a child and asked a parent for something and they responded with, “let me discuss this with your mother (or father).”   When put on the spot, having someone else to consult with gives you a nice way to stall. It also gives you the opportunity to say that person would not accept the proposition as presented, but with a modification, would go for it!

Now take this concept to your banking negotiations. You will find that your company gains strength when a CFO or top financial person is put in charge of bank negotiations. The negotiator gains much leverage when they can tell a banker they were given orders by the owner to secure a certain rate or terms.

Of course, the negotiator will also gain clout by bidding out the company’s financing needs. We suggest letting three institutions give you their best shot on your total banking relationship. You will likely find areas you find appealing in each proposal. Use them to negotiate the most advantageous deal.

For instance, one bank may offer a very favorable cash management program, while another does well on loan terms and another has excellent checking account services. By negotiating, you can obtain all three through one institution. Without bidding, you may have missed out on two out of the three offers!

Here are a few additional tips for negotiating the best deal:

Þ      Find out what your bank wants. Are they most hungry for loans, deposits, what?

Þ      Never jump at the first offer. It’s never the best they can do.

Þ      Never negotiate on the phone. Face to face always brings better results.

Þ      Learn the power of walking away. If the deal isn’t what you need, be prepared to walk. You’ll be surprised at how often a new, better deal magically appears.

In summary, remember you get what you negotiate. If you are not satisfied with your present banking relationship, try changing negotiators.

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