Your Bank Is in the Banking Business

The Phone Call That Changes Everything

Picture this phone call. It’s Tuesday afternoon. Jim Rodriguez, who owns three auto repair shops in Phoenix, is sitting in his office when the phone rings.

“Mr. Rodriguez? This is Amanda from First National. I wanted to let you know that we’ll need to discuss the terms of your equipment line of credit. Market conditions have changed, and we’ll be adjusting rates across our commercial portfolio.”

Jim’s stomach drops. Not because he’s behind on payments—he’s not. Not because his business is struggling—it’s not. His shops are profitable. He pays his bills. He’s been with this bank for eight years.

But Amanda is calling to tell him that the cost of capital just went up. Because the bank decided it should.

“The new rate will be prime plus 3.2%, effective next month. That’ll bring your line to about 9.7%. We’ll also need updated financials and a new personal guarantee.”

Jim hangs up and does the math. His average outstanding balance is $185,000. The rate increase costs him an extra $2,800 a year. Not because anything changed about his business. Because something changed about the bank’s profitability targets.

Here’s the part that really bothers Jim:

Where did the bank get the money they’re lending him? They borrowed it. From their depositors. At much lower rates.

While Jim pays 9.7% for capital, the bank pays their depositors maybe 4.5% for the same money. They pocket the difference.

Jim is paying for the privilege of borrowing his own money back.

How the Banking Business Actually Works

Let me show you something most business owners never think about clearly.

A bank doesn’t create money from thin air. Despite what conspiracy theories might suggest, they can’t just type numbers into a computer and magically produce cash.

Here’s what actually happens:

1. You and other business owners deposit money into checking accounts, savings accounts, CDs
2. The bank pools that money and lends it out to other customers
3. They charge borrowers more than they pay depositors and keep the spread
4. They use your deposits as collateral to borrow additional funds from other sources

That’s the business model. It’s not complicated. It’s financial intermediation.

You supply the raw material (deposits). They process it (lending). They keep the profit (interest spread).

And here’s the part that should bother you: you’re on both sides of this transaction. You’re the depositor earning 4.5%. And you’re the borrower paying 9.7%. The bank makes money off you twice.

The Numbers Nobody Shows You

Let’s look at real numbers from a typical community bank’s business model:

What they pay depositors:

• Checking accounts: 0.5%
• Savings accounts: 4.2%
• CDs: 4.8%
• Weighted average cost of funds: ~3.8%

What they charge borrowers:

• Business lines of credit: 8-12%
• Equipment loans: 7-10%
• Real estate loans: 6-9%
• Weighted average on loans: ~8.5%

Net interest margin: 4.7%

This means for every $100 they lend out, they keep roughly $4.70 per year in pure profit. Before expenses. Before loan losses. Before salaries and buildings and marketing.

That’s the spread. That’s the business.

And where does this $4.70 come from? It comes from the gap between what you earn as a depositor and what you pay as a borrower.

The Retail Markup System

Think of it like a grocery store, except with money instead of milk.

A grocery store buys milk from dairy farmers for $2.50 a gallon. They sell it to you for $4.20 a gallon. They keep the $1.70 difference. That’s how retail works.

Banks do the same thing with capital.

They “buy” money from depositors at one price (4.5% interest). They “sell” it to borrowers at a higher price (9.7% interest). They keep the difference (5.2%).

The only difference is that with groceries, you’re not also the dairy farmer.

With banking, you supply the raw material and buy the finished product. You’re the dairy farmer who sells milk for $2.50 and then drives to the store to buy it back for $4.20.

And somehow, you think this is normal.

Where Your Business Fits In

As a business owner, you’re the bank’s ideal customer. Here’s why:

You’re a reliable depositor:

• Payroll accounts
• Operating accounts
• Escrow accounts
• Money market accounts for reserves
• CDs for “safe” money

And you’re a constant borrower:

• Equipment financing
• Working capital lines
• Real estate loans
• Vehicle financing
• Expansion capital

You provide the capital. And you rent it back. Over and over and over.

Let’s say your business keeps an average of $125,000 in various accounts at the bank. They pay you maybe 4% on that money. Cost to them: $5,000 per year.

Meanwhile, you have $200,000 outstanding in various business loans at an average rate of 8.5%. Revenue to them: $17,000 per year.

Net profit from your relationship: $12,000 annually.

Multiply that by every business owner in their portfolio. Add up the years. Now you understand why banks love business owners.

You’re their most profitable client segment.

The Credit Committee Theater

Here’s something that will annoy you once you understand it:

When you apply for a business loan, the bank makes you feel like they’re doing you a favor. Credit applications. Financial statements. Personal guarantees. Committee reviews.

But think about what’s really happening.

You’re asking for permission to rent back money that your business relationships helped create. The deposits in their vault? A significant portion came from business owners just like you.

The bank pools that money, marks it up, and rents it back to the same community that provided it.

And then they make you grovel for approval.

It’s like depositing $10,000 in January and then in March being told you need to fill out an application, provide references, and pledge collateral to borrow $8,000 of it back.

The money was yours to begin with. The bank is just the middleman.

But somewhere along the way, we started treating the middleman like they own the money.

Why They Don’t Want You to Understand This

Banks spend millions on marketing to make you feel like they’re your partner. “Community bank.” “Relationship banking.” “We believe in small business.”

But partnerships involve shared profit. This is rental.

They want you to think they’re providing capital out of the goodness of their hearts. What they’re actually doing is arbitraging the spread between what they pay for money and what they charge for it.

There’s nothing evil about this. It’s business. But call it what it is.

They don’t want you to understand how dependent the model is on your participation. Without depositors, they have nothing to lend. Without borrowers, they have no one to lend to.

You’re not their customer. You’re their inventory.

The Real Cost of Financial Intermediation

Here’s what this system costs you over a career:

Interest paid on business loans: Let’s be conservative—$3,500 per year on average across equipment, vehicles, and working capital.

Opportunity cost of low deposit rates: The difference between what you earn in bank accounts versus what you could earn elsewhere—maybe $2,200 per year.

Total annual cost of the banking relationship: $5,700

Over a 25-year career: $142,500

That’s the cost of letting someone else control the banking function in your life. Not the cost of capital itself—capital always has a cost. The cost of the intermediation.

The cost of letting someone else sit between you and your own money.

The Question That Changes Everything

Here’s the question that changes everything:

What if you could eliminate the middleman?

What if, instead of depositing money at 4.5% and borrowing it back at 9.7%, you could lend money to yourself at whatever rate made sense?

What if, instead of asking a credit committee for permission to access capital, you owned the capital?

What if, instead of paying the spread to a bank’s shareholders, that spread stayed in your family?

What if you could be on both sides of the banking transaction?

The Banking Function vs. Banking Institutions

Here’s something most people never consider:

Banking is a function, not a place.

The function is this: pool money, lend it out, earn a spread. Manage the risk. Profit from the time value of money.

We’ve been conditioned to think this function can only happen inside marble buildings with vault doors and customer service desks.

But functions can be performed anywhere. By anyone.

What if the banking function—the pooling, the lending, the spread—happened inside something you controlled? What if the profits from managing money flowed to your family instead of to distant shareholders?

What if you could become your own source of capital?

The Infrastructure Already Exists

The technology exists. The regulatory framework exists. The infrastructure exists.

It’s been around for over 200 years. It’s been tested in courts, scrutinized by regulators, and validated by actuaries.

Most people just don’t know it exists. Because banks don’t advertise it. Financial advisors don’t teach it. And business schools barely mention it.

Why would they? It eliminates their role as middlemen.

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In the next article, we’re going to talk about a forester from Alabama who figured this out in 1980.

His name was Nelson Nash. He was drowning in debt at 23% interest rates. And while he was praying at 3 a.m. for a way out, he discovered something that changed everything.

He learned that the infrastructure to bypass the banking middleman had been sitting in front of him for years.

He just hadn’t known how to see it.

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This is educational only and not meant to serve as financial advice.