Tips in dealing with your banker
Learn from the tips in these continuing articles.
Tip No. 10 – Don’t stew over a boilerplate
Who doesn’t hate boilerplate in legal documents? Just trying to read through all the fine print seems to take days. It’s an eye test!
Here’s the bottom line on boilerplate: It isn’t negotiable. It doesn’t matter if you find something in there that you really don’t like or aren’t comfortable with; you won’t be able to negotiate it out of the contract. So don’t waste your time. And if you really read it all, you won’t want to do the loan. But don’t confuse this with being careless or dismissive about terms of the debt. This tip is especially in standard residential loans, especially those insured by FHA and other lenders.
Eye test – A chart or other presentation where the text is so small that no one can read it. The term is often used to describe presentation slides (such as Power Point) with too much data. Presentations should be an overview, not a long list of details. It also is used when referring to the tiny print in any contract, the boilerplate.
Tip No. 11 – Give the bank what it wants – your money
Do you know why a bank gives you a loan? No, it’s not because it thinks you’re a great person and it isn’t because the banker is so nice that he or she just wants you to be happy.
Banks give you loans because they want your deposits. They want to have the rest of your money, so they are willing to give you some money to entice you to bank with them. Typically, the credit committee that approves the loans is going to want to do business only with people who give that bank their deposits.
So, what if you already have a primary bank that handles your main accounts, but you want to get a loan from another bank?
The answer is simple: The best way to get the loan – without moving your existing primary account – is to buy a CD from the target bank and then take out a loan against the CD. And don’t forget that this can enhance your financial statement optics. If you are going to need the interest from the CD to make your payment on the loan, make sure it’s deposited into a separate account and not added back to the CD, which is typical.
Tip No. 12 – Negotiate your loans
In a real estate loan, the bank will typically give you terms; for example, let’s say it gives you a 15 year term with 5 year call provisions (or maturity). What that means is that you make the payment based on a 15 year loan, but the call provision means that the balance of the loan is actually due at the end of the first 5 year period.
These kinds of loans aren’t working out very well in the economic downturn for borrowers. Because of call provisions, property owners are finding that their loans are now due and they can’t get anyone to finance it, so the property may go into foreclosure.
Here’s a good way to avoid that situation. At the beginning of the negotiation process or in the fourth year of the loan, start negotiating to convert the call provision into another five year interest agreement. The interest rate might be keyed to the prime rate; it might be two points over prime, but at the end of five years, instead of becoming due, it automatically renews for five more years at that rate.
Talk with your banker about converting calls into interest rate adjustments because, particularly in today’s market, it’s your best bet for holding onto your investment. What if your situation has weakened? It’s much better, and most lenders will agree to rate adjustments at some point in the term of the loan rather than a call. It actually can benefit them as they have less exposure to rate fluctuations.
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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 WWW.autosalvageconsultant.com
He can be reached at 5940 Eden, Haltom City, TX 76117, firstname.lastname@example.org or
817-834-3625 ext 6#.