Commercial Loans and Fun Blog

Using a Deposit Relationship to Obtain a Commercial Loan

Posted by George Blackburne on Thu, Oct 18, 2012

If your commercial mortgage borrower owns a successful business, you can often use his normal business bank deposits as a lever to obtain for him a new commercial loan.  Let me explain how and why this works.

Good borrowers mean very little to most bankers.  Borrowers are like trolley cars.  There is always another trolley car coming down the track.

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Large depositors, on the other hand, are very important to bankers.  Keep in mind that most commercial banks rarely sell off their loans.  They are portfolio lenders.  In other words, banks keep (almost) all of the loans that they make.

As a result, banks can only make so many loans.  The limiting factor is the size of their deposit base.  The more deposits that a bank enjoys, the more loans it can make, the more loan fees it can earn, and the more interest income it can earn.  When the banks has loaned out all of its deposits, however, the bank has to stop making new loans.  It cannot earn more loan fees and more interest.   

The name of the game in banking is therefore to provide excellent banking service to high-net-worth individuals so they will move their deposits to your bank.  Banking is all about growing the bank's deposit base.  The deal is that the bank trades a short-term commercial real estate loan in return for a long-term deposit relationship.

Now let's suppose your borrower owns a successful widget company, and he needs a commercial real estate loan.  Let's further suppose that he banks with a large money center bank, like Bank of America, and Bank of America has turned him down.  Here is how you may still be able to get him a bank loan:

Go to and type in the address of his his widget business.  The location of his widget factory will apear on the map.  Then ask Yahoo Maps to plot all of the nearby banks.

Select a nearby small bank.  Its VERY important that the bank be a small one.  The large, money center banks - like JP Morgan Chase, Citigroup, Bank of America, and Wells Fargo Bank - accept deposits from all over the country, and they don't appreciate new, local depositors nearly as much as small banks.

Call the small bank and ask to speak the branch manager.  Don't allow yourself to be redirected to some loan officer.  Insist on speaking directly with the branch manager.

When he comes on the line, explain to the branch manager that you represent the owner of a successful business nearby and that you would like to bring your owner down to the bank to talk about moving his deposits to a new bank in return for a short term commercial real estate loan.  Most branch managers of small banks will practically jump through the phone line in their enthusiasm.

This is how you will finance your successful restaurants and your successful bowling alleys.  The operative word here is successful.  Successful business owners maintain large average daily balances in their business accounts, and their personal savings accounts as often impressive as well.  Bankers want those deposits, so they will trade a short-term business loan for a long-term deposit relationship.

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Topics: deposit relationship