ESTABLISHING BANK CREDIT 1. Opening an account.—Every young man should open a bank account as early in life as possible, pay his bills by check, and learn to transact his business in the systematic way that the keeping of a bank ac count requires and facilitates. The bank usually ex pects that a fair sized deposit be built up before any loan is made, or at least that the customer shall have been carrying a deposit account for some time. This enables the officers to become acquainted with the de positor and to pass more quickly on his application for credit when it is made. The first step in opening bank relations is to become known at the bank and to gain the confidence of the officers. It is wise to ar range for an introduction by some well-known and important depositor.
2. The first loan.—The building up of confidence is slow and tedious work, and a single mistake may tear down the result of long effort. The first loan should be secured as soon as possible, and great care taken to make sure that it can and will be paid promptly at maturity. The best piece of information that a bank can have about a customer is that he has borrowed fre quently and has always paid on time.
When a young man knows that he can meet a mod erate obligation at his bank in sixty, ninety or even one hundred and twenty days, he should make an ap plication for a loan. Let him buy a thousand dollar bond or some preferred stock of a good safe industrial concern or a railroad, paying $800 down on it and leaving the rest as a loan. Before buying the bond, he should consult his banker for advice as to the best bond to buy and for assurance that the bond will be accepted as collateral by the bank. The average banker will be glad to help in this way.
If the borrower is sure that he can pay $200 at the end of four months he should draw a note, leaving the bond as collateral. The banker may be willing to carry the loan on demand and permit monthly reduc tions. The bond or stock which is bought should have a higher yield than the rate charged by the bank if this is possible, otherwise the transaction will net a loss to the borrower. Even a small loss is justified in
order to establish a relationship with the bank. Many a less valuable acquaintance costs more. It will not take more than two or three such transactions to es tablish a reputation with a banker, provided the loans are made and paid in a business-like way.
Many business houses have followed the same plan and have made applications for loans when not in pressing need, and established borrowing relations in this way with their banks which served them well in time of need.
3. Applying for a loan.—In making an applica tion for a loan, the borrower should always remember that a bank makes its profits primarily by loaning and that for this reason, a banker is always anxious to make a safe loan if he has funds on hand for the pur pose. All that is needed is convincing evidence that the proposition is safe.
On the other hand, a banker knows that the refusal of a bad loan not only saves the bank from loss, but that it may also turn out to be a good advertisement. A stockholder of a certain bank applied for a loan of $1,000. He was not worthy of credit for any amount, and if the loan had been granted, it would have proved a total loss. The loan was promptly declined. The applicant left the bank and at once told some people that the bank was not serving the community and that it was "no good" because it would not grant him a loan. In less than thirty minutes from the time he left the cashier's desk another stockholder and deposi tor came in to see the cashier and congratulated him on refusing the loan. He said that if this particular ap plication had been granted he would have withdrawn his balance and sold his stock. As the bank was new this one withdrawal and sale of stock would probably have done it serious injury. The result of this par ticular refusal was worth hundreds of dollars to the bank. It gave the community confidence in the man agement.