Relationship banking can have many positive features, and it’s important to understand how it works so that you can receive every advantage available. Whether you’re an individual seeking a personal loan or a business in need of commercial financing, having an established relationship with a bank can be very beneficial. You as a potential borrower should be sensitive to the fact that your bank is in the business of providing more services than traditional cash management and currency handling. As a matter of fact, banks are actively seeking to expand their list of products beyond that of checking and savings accounts and CDs.
Banks need deposits in order to make loans, and it’s not necessarily important where they get them, or even if they’re time or demand deposits. Every day, banks need millions of dollars on deposit in order to meet their needs for cash to cover loans and customer withdrawals. The savvy banking customer recognizes this aspect of the banking business and is prepared to not only be confronted with requests to utilize the banks depository and other services, but to use these relationship opportunities to his or her possible advantage.
In building and strengthening a banking relationship, there are many offered items and services which can be used:
- Demand deposit accounts (DDAs) - Most individuals and virtually all business maintain some form of demand account, usually in the form of a checking account. The funds in a demand account can be withdrawn by the customer upon “demand” in the form of cash, a check or electronically.
- Time Deposits (TDs) - The funds of time accounts are placed on deposit with a bank for a definite or indefinite period of time. In return, the bank pays the depositor interest on those funds. The most common types of TDs are savings accounts and Certificates of Deposit (CDs).
- Safe deposit boxes - Banks rent these boxes inside their vaults for the storage of their customers’ valuable documents and assets.
- Insurance and investment services - Many banks now offer a wide range of these products in an effort to expose customers to their need for, as well as the ease and convenience of purchasing, such services.
- Credit - The extension of credit is one of the most well-known services provided by banks. A wide variety of loans are available including personal, automobile, home mortgage, and business equipment loans, to name a few.
- Merchant credit services - Every business that accepts Visa, MasterCard, American Express, or Discover credit cards must have a merchant account through which to process those charges. Banks provide these accounts as well as account management tools and support.
When requesting a loan, you as a borrower should keep in mind the bank’s desire for your use of these other offered services. If you can demonstrate to the lender that their extension of credit to you will also provide to them a loyal and more deeply rooted customer, the lender might be persuaded to be more compromising in some ways to approve your loan request or grant more favorable terms. A combination of a few of these accounts could mean thousands of dollars in fee income to the bank and provide a new source of inexpensive deposits for them.
Of course, new relationship accounts won’t make a bad loan proposal good (whether personal or business), but in can enhance a questionable or “borderline” application and provide the lender with incentive to give you a chance. If you’re a very strong borrower and don’t need any type of assistance, additional relationship accounts can help to improve the interest rate or other loan terms that the bank may offer.
