What’s a Money Store?

One hundred seventy-five years ago, a group of residents in East Lexington, MA got tired of their three-mile round-trip trek to Lexington Center for Sunday services and decided to build themselves a church. To raise construction money, they held a fair. It was so successful that they decided to do it again the following year, and a year after that – in 1840 – the new church was completed.

But the good works of the church – significantly directed to social justice – were just beginning, and the money to fund these good works was scarce. So the fair – now the East Village Fair – has continued on an annual basis ever since then, with the proceeds contributing to the church’s ever-broadening social justice mission.

I thought of those seven generations of predecessors as I stood behind the cash-out counter of the Fair’s Flea Market at 9:00 a.m. last Saturday, braced for the hordes of bargain-seekers about to descend on thirty tables piled with treasure – glassware, art work, housewares, linens, toys, games, books, hardware – some of it considered by its donor to be perhaps just a cut above trash.

All of these items had at one time been new, the product of some manufacturer, or artisan, or publisher somewhere. Now well past their prime, they still retained some utilitarian – perhaps even aesthetic – value to their buyers. As the new owners, most of them very pleased with their bargains, lined up to pay me, one said, “This makes it worth getting up early on a Saturday morning.”

The hours passed. A set of martini glasses ($3) followed an American Girl doll ($5) followed a desk lamp ($4) and an alarm clock ($2) out the door. Someone had once conceived each of them, I thought, and others produced them, packed them, shipped them, received them, and displayed them, perhaps several times in the distribution channel. Each stop was a transaction, and money likely changed hands, all prior to the ultimate buyer’s cash.

Every one of those transactions needed to be funded, perhaps for as long as sixty days. Some funding might come from equity – maybe to cover the conceptual part – but most of it would be simple working capital to bridge the gap between the time that the business owners paid for producing, or shipping, or housing, or displaying the product and when they ultimately got paid for it.

Where did this working capital come from? Who was the purveyor of this fiscal product? Why, the money store, of course – your friendly neighborhood banker.

At one level, this is elementary. Everyone knows that banks lend money. But relatively few people think in terms of banks having a product – money – which they sell at a rate of interest. Actually, they don’t sell it, they rent it. You have to give it back. So what they charge you is a rental rate – the interest – which you pay to them monthly. Unlike lessors of other products (cars, apartments, TVs), however, bankers don’t allow for “normal wear and tear” in the life of their product: they want it back exactly like they rented it, that is, in exactly the same amount.

Because money is, by definition, fungible (it can take different forms), it’s often not as easy to identify, or to repossess, as a car or a dwelling place, and its renter may similarly be difficult to keep track of. So the bank asks for up-front documentation to determine the future use of the funds (what new form its money will take) and to establish an assurance that you, the borrower, will not only be capable of returning the funds at the end of the rental period but be fully committed to doing so. Along the way, the bank wants to check on the condition of its asset (your loan), much as a landlord does when he/she periodically checks your apartment or as a car dealer does when he/she services your leased vehicle: the banker requires periodic reports on the business.

As simple as this may seem, I was reminded more than once in recent weeks that there are business owners – especially new business owners – who are intimidated by banks and bankers. If you are the owner of a profitable business, but you’re short of cash to sustain your business between the time that you pay for the cost of the goods or services that you sell and the time (days, weeks, or months) down the road when you collect from your customers, visit your friendly neighborhood bankers in their retail store down the street. They’re in the business of selling and delivering, just like you are.

As final motivation, think of all that recycled bric-a-brac at the last flea market you visited. Most of that product required outside financing, some of it perhaps from nineteenth-century bankers. It’s a lot easier to trek up town to the money store now than it was then.