plura Financial Blog

blog for, an online matchmaker between banks & small businesses

Posts Tagged ‘anti tying

What is a Relationship Lender?

leave a comment »

I challenge you to find a bank that says they’re not a “Relationship Lender” these days.  When you think of the words “relationship lender”, does it conjure up images of your banker treating to a round of golf, buying expensive steak lunches, and giving you loan after loan at the lowest rate without regard for financial performance?  Think again.

Relationship Lender means the bank requires the company’s operating account in order to give you a loan (in addition to the standard credit criteria).  But the banker is not allowed to say this because of a federal law called “anti-tying” that says a bank cannot require you to sign up for one product (e.g. cash management) in exchange for receiving another (e.g. a business loan).  I’m not a lawyer, but that’s the explanation of tying given to me by our legal counsel when I worked at a bank.  Banks want your operating account (cash deposits) for two primary reasons: (1) if your loan is in default they probably have the right to “sweep” (take) all the cash in the checking account because it’s part of their loan collateral, and (2) banks are required to have a certain amount of cash for each $1 they lend.  The more cash people hoard at their bank, the more loans the bank can make and the more funds the bank can borrow from the Federal Reserve, etc.

Should you avoid “relationship lenders” when seeking a business loan?  Absolutely not; many of the most competitive banks also classify themselves as relationship lenders.   When a bank tells you they’re a relationship lender, should you ask what exactly that means?  Absolutely yes.  If nothing else, it will be an amusing conversation and a great way to start off your joyous relationship together!

Looking for a bank or business loan? creates relationships between banks & businesses online, or you can ask your local Small Business Development Center which bank might be best for your business.  Both are free ways to find the best bank for you & your business.


Written by entrabanker

September 12, 2012 at 3:14 am