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New Jersey Business Lawyer | Business Formation | LLC  Limited Liability Company | IRS Tax | Business Purchase | LLC Lawyer
Some People Overpay the Government...But Certainly Not our clients!
Ronald J. Cappuccio, J.D., LL.M. (Tax)
Counsellor at Law
1800 Chapel Avenue West, Suite 128
Cherry Hill, New Jersey 08002 US
(856) 665-2121   Fax (856) 665-9005
Email: Ron@TaxEsq.Com
LLC Lawyer LLC Attorney

The key to happiness is learning to expect, not demand, from life. 
-Hermann Witten

Helping Small and Emerging Businesses become more profitable!

Negotiating a Business Bank Loan


   Tips on How to Bag a Loan

Is your company in the market for a loan? Keep in mind that many bankers are willing to negotiate some of the terms of their loans in order to get your business. Since the decline in home values and commercial real estate has resulted in less related mortgage loans, bankers are now seeking business borrowers.

You might be able to swing a deal that's more advantageous to your company's cash flow. It has to do with the "compensating deposit balance" required on certain loans.

Bankers often require that you keep some fixed dollar amount or percentage of the face value of a loan in a deposit account. This helps the bank offset some of the risk. But the compensating deposit balance can be calculated in a couple of different ways. The exact calculations can have a big impact on your available cash.

Even if a bank's written policy states that the balances are figured using a certain method, you can ask to have the terms changed in your favor. Of course, the higher amount that your company agrees to hold as a compensating balance actually raises the amount of interest you earn. However, your company loses the all-important use of the cash.

Let's say your banker offers you a loan that calls for a $5,000 "daily balance" requirement. That means that before the close of each business day, you must have at least $5,000 in your account. In some cases, bankers "hold" your funds so that they cannot be used accidentally.

Here's an alternative strategy: Ask the banker to use an "average" compensating balance calculation instead. Under this calculation, your company doesn't have to scramble to meet the daily balance requirement.

You simply need to keep an average amount in the account during an agreed-upon period, which is usually monthly. This method is better if your company's cash flow fluctuates.

Reason: The flexibility of an average compensating balance softens the effect of days when your cash demand is high but deposits aren't flowing in as expected. All of your operating funds are available when you need them most.

 Please call me at (856) 665-2121 or Email me to discuss financing for your business.

Copyright 2007 Ronald J. Cappuccio, J.D., LL.M.(Tax) 1800 Chapel Avenue West, Suite 128 Cherry Hill, NJ 08002 USA (856) 665-2121  Email: Ron@TaxEsq.com