A cloudy forecast

With the current financial market
changing every day, it is difficult
for even the savviest businessperson to monitor trends and changes.
Therefore, many people turn to a private
banker to help them monitor trends and
develop financial plans for personal and
business assets.

“Consumers should look for someone
they trust and who they can pick up the
phone and call to help solve any problem
they may encounter,” says Josefina
Enriquez, vice president with Banco
Popular. “The United States market is not
the only volatile market in the world. It’s
important to work with an international
private banker who educates himself or
herself on other country’s markets and
politics to help consumers make educated decisions as they invest money in foreign markets.”

Smart Business spoke with Enriquez
about the value of private bankers and
how it is important to utilize an international banker who is constantly up to
date on foreign affairs.

How does a private banker benefit a consumer?

With ever-changing market trends, it is
necessary for consumers to utilize a
banker who monitors trends and identifies the needs of the individual consumer. As the market changes, a private
banker should identify how the changes
affect his or her clients’ financials and
notify them of any changes they may
need to make to get the most for their
money.

A private banker should be part of a
consumer’s overall business team. The
private banker can become a valuable
asset to the consumer or the consumer’s
business. A private banker does not have
to have all the answers, but he or she
should be able to connect a consumer
with those professionals in the bank that
can help with individual needs.

Beyond providing personalized service,
a private banker should address the
entire financial situation of the consumer
and offer the services that will help
achieve long-term goals. Such services may include protecting and growing
assets, developing retirement plans and
passing wealth to future generations.

Why is it important to have a central point of
contact at your bank?

A private banker is able to develop a personal relationship where he or she will
know your history and the steps you are
taking to achieve your long-term goals.

A private banker also has access to any
banking professional you may need.
Today, time is money and, therefore, no
one can afford to be held up waiting for
answers or for someone to answer the
phone. With a private banker, such
delays are circumvented. A client should
meet with his or her private banker at
least once a month to keep the banker up
to date on any changes in his or her
financials.

For business owners with many different locations, a private banker helps keep
all information centralized. This prevents
confusion and increases overall efficiency for a business.

How can a consumer select a private banker
who will become an asset to his or her financial plan?

A private banker must listen. Be selective and look for a private banker you
trust and who you know is listening to
you. As a professional, he or she must
help you identify the financial aspects
you as a consumer have yet to identify.
You want someone who will notify you
before major market changes occur and
help you react to changes.

Many international customers want to
invest money in U.S. markets or open
businesses here but do not know all the
requirements to do so. As a private
banker, it is important to help educate
consumers of all laws and regulations
they must abide by to enter into a market.

A private banker should also be service-oriented, knowledgeable and detail-oriented. It is a private banker’s job to provide a consumer with adequate market
information so the consumer can make
an educated final decision.

Why is it beneficial to utilize an international banker for personal finances?

A private banker with international
expertise is an asset to any consumer or
business wanting to invest in foreign markets or open businesses in foreign countries. An international private banker
should have a basic understanding of the
economic and political conditions of the
country where he or she conducts business. With such knowledge, private
bankers help their clients make smart
business decisions.

A good international banker will notify
a client when foreign markets are changing and it is time for a consumer to move
or invest money. It may be more efficient
for a bilingual international banker to
help you communicate in business transactions in other countries. If you are performing any type of international financial transactions, it is crucial to have an
expert in that country on your side.

JOSEFINA ENRIQUEZ is vice president in International Banking for Banco Popular. Reach her at (305) 938-0113.

Doing D&O

Corporate directors and officers routinely make important business decisions that impact their companies, employees and other third parties. Failure to
adequately assess the impact of these decisions can lead to litigation.

Countless high-profile cases impacting
publicly traded companies have led many
corporate executives to assume that directors and officers of private companies do not
face the same liabilities or need the same
protection as their counterparts on publicly
traded companies. This is simply not true
and a frequent error on the part of risk managers and brokers.

Smart Business spoke with William Edwards, area managing director of Arthur J.
Gallagher & Co.’s Management Liability
Division, about the importance of directors’
and officers’ (D&O) liability insurance and
how to prevent some litigation.

Why is it necessary for private companies to
invest in D&O liability insurance?

The cost of defense, settlement or judgment of liability claims can be material to private companies. These costs can potentially
force companies to delay lucrative new projects. In some cases, the costs are so burdensome they may force the sale or liquidation
of the company. D&O insurance protects the
directors’ and officers’ personal assets and
the company’s assets. This coverage also
provides them with access to valuable
resources to assist the company in managing
litigation.

The typical private company D&O insurance policy includes two insuring agreements. The first insuring agreement provides
protection for the directors and officers
when their personal assets are at risk. The
second insuring agreement provides protection for the company when its assets are
at risk.

For what types of allegations should company owners prepare?

Typical allegations by employees include
wrongful termination, discrimination, harassment, or misrepresentation of employee
benefits. Parties may also sue for interference with a prospective business advantage, misrepresentation, fraud, or violation of federal, state or local securities laws.

Most people think of securities only as publicly traded stock, but the term also includes
private stock, bonds, debt, investment contracts and many other instruments issued by
private companies. Mergers, acquisitions and
other transactions are frequent sources of
securities claims. Due to the complexities of
valuing private companies, securities claims
often occur when a minority shareholder
wants to sell his or her interest. This is seen
even in small family businesses, often after a
divorce or another stressful event leads one
of the owners to sell his or her interest.

What steps can company owners take to prevent liabilities?

Planning can reduce the likelihood of litigation and it can provide the directors and
officers with a much stronger defense, but it
cannot eliminate the possibility of litigation.

The most important step management can
take is to establish adequate review processes for important decisions. For example,
companies should have an established
process for terminating an employee. D&O insurance carriers and broker specialists can
provide sample policies and procedures to
help address certain exposures. In some
instances, the cost of the insurance policy
and access to these services may be similar
to the cost of hiring an outside firm to provide similar services.

Outside directors must understand their
responsibilities, make sure that they have
access to all necessary information, and
actively work to fulfill their responsibilities.

How can directors ensure employees’ and
customers’ needs are met?

Directors should establish adequate communication channels. Many companies
have ‘hot lines’ for employees or even customers to call in complaints or suggestions.
At the very least, management should provide employees with two channels to communicate problems. This will ensure that,
should one channel be controlled by the
source of a problem, an alternate channel is
available. Once these channels are in place,
a person or committee should review the
complaints or suggestions on a timely basis.
Employee responsibilities and the chain of
command should be clearly defined and
communicated.

What steps should a director or officer take to
protect personal assets?

First, review the corporation’s indemnification provisions. If they are insufficient,
request that they be modified or request a
separate indemnification agreement.

Second, consider the corporation’s ability
to provide indemnification. If the company is
not financially sound or is in a high-risk venture, it may not have the means to provide
indemnification.

Finally, consult with a broker who specializes in D&O liability to obtain insurance that
will provide protection in the event the corporation cannot provide indemnification. In
some instances, insurance can respond even
when the corporation is not permitted by
law to provide indemnification.

WILLIAM EDWARDS is an area managing director of Arthur J. Gallagher & Co.’s Management Liability Division. Reach him at
[email protected].

Something to build on

In 2004 and 2005, there was a large boom
in the construction industry in South
Florida. By 2008, the developers enjoying unusual sales growth have experienced
sharp declines in revenues and income, says
Sonia Olarte, Senior Vice President with
Banco Popular. While their income levels
are minimal, they continue to be responsible for their obligations. Lenders are trying
to work with them to stay in good standing
and maintain projects in track.

There have been changes in lending
processes over the past months. While
lending standards have remained the same,
banks are tightening their guidelines, particularly in light of the unsold inventory in
the Florida housing market.

Smart Business spoke with Olarte about
the changes in construction lending guidelines and the overall effects of stricter guidelines on developers and their financial future.

How have lending guidelines changed in
recent months?

Financial institutions are applying
stricter guidelines and a more prudent
approach. It is more important than ever to
look at the overall picture of a company
and its on-going projects.

Today, banks not only focus on the feasibility of a project, but more than ever on the
overall financial position of the builder and
its capacity to complete the project. The
project for which a developer may want to
borrow money may be a great concept, but
you have to look at its capacity to develop it.
Is the developer financially stable? How
many other projects are under construction? Does it have access to additional capital? What is its level of experience in the
industry? Does this experience include a
previous market downturn? Was it able to
satisfactorily work through the difficulties?

During the boom years, developers were
simultaneously working on various projects; they were selling and expanding their
profit margins. With the market downturn,
an increased level of unsold inventory,
reduced profit margins and lack of available
credit it is now considered a higher risk.
Under present market conditions, the
capacity and ability of the company to complete a project must be thoroughly analyzed.

Is now a good time to borrow money for construction needs?

It would depend on the need and/or
demand for the proposed end product.
Although guidelines are stricter, there may
be some opportunities for certain property
types to be developed or business owners
not directly affected by the existing market
conditions that are ready to expand their
business .

Positive aspects to consider are lower
interest rates, declining land prices and
somewhat lower construction costs, mainly labor. For businesses that are ready to
expand, now is a good time to borrow
funds for new developments.

Does a bank monitor construction progress
and how loans are being utilized?

Banks generally utilized third party
engineers to determine the progress of a
project, with site visits about once a
month to report progress to the lender.
In today’s market, it is crucial that projects stay on time with proper utilization
of funds.

That being said, the monitoring level has
increased, in some cases weekly, to timely
identify and resolve potential delay causes.
We need to make sure the predetermined
schedule for funds is being followed. If a
project is far off its track or delayed, we
can cease disbursing of funds in an attempt
to restore progress. If it is determined that
a project may not be feasible, we could
cease funding in its entirety.

How do developers proceed with new lending
guidelines and an ever-changing market?

Proceed cautiously. As lending guidelines
are severely applied, developers should be
prepared to contribute larger cash equity
into their projects.

A developer has to be prepared for and
able to handle other risks associated with
the construction process. Delays and overruns result from ever-changing building,
zoning and construction laws and weather
conditions. Designing a development team
comprised of legal experts, accountants
and other real estate professionals would
help in preparing for such risks and identify them timely. Due diligence should be
exercised prior to purchasing the land,
such as reviewing the property title for its
zoning, availability of utilities, etc.

Is there hope for development and construction companies in the future?

Some of the positive news is not usually
reported. For example, reductions in housing inventory are being reported in certain
industry sectors of Florida. If this trend
continues, some developers may resume
building in a year or two from now. Real
estate is a cyclical industry affected by
both local and national economic conditions, such as growth in population,
employment, consumer spending and
interest rates. Presently, as reported, the
level of consumer spending and confidence is reaching low levels. The housing
industry, as well as other markets, will
begin to turn around as long as consumer
confidence is restored.

SONIA OLARTE is Senior Vice President and Manager of Construction and Real Estate for Banco Popular. Reach her at (786) 953-1238
or [email protected].

Are you qualified?

When applying for a loan, do you
know what qualification factors
financial institutions use to determine if you are qualified?

“By knowing what lenders are looking
for during the approval process of a loan,
a business owner can better prepare and
address some of the issues prior to asking
for the loan,” says Frank Muniz, vice president and commercial relationship officer
of Banco Popular. “Commercial loans are
unique in that no two are identical. As
long as the risks can be mitigated, lenders
have more flexibility in getting the deals
done.”

Smart Business spoke with Muniz
about the five Cs of credit, how they are
weighed in the credit process and how
that can affect business owners.

What are the five Cs of credit?

  • Character — Before a business loan is
    obtained, lenders need to be sure that they
    can believe in the character of the business
    owner(s) and business. The basis in measuring character is the business owner’s
    credit reports, past payment trends, references, educational background and business experience.

  • Capacity/cash flow — There must be
    adequate cash flow available to repay the
    loan. A prospective lender will want to
    know exactly how you intend to repay the
    loan. The lender will consider the cash
    flow from the business, the timing of the
    repayment and the probability of successful repayment of the loan.

  • Collateral — These are the assets that
    the borrower offers to the lender to secure
    a loan. The primary collateral is usually the
    business assets, but if they are not sufficient, additional collateral, such as real
    estate, may be required.

  • Capital — The money you personally
    have invested in the business. This is an
    indication of how much you have at risk.
    Lenders will expect you to have contributed from your own assets and have
    taken personal financial risk before providing additional funds.

  • Condition — Refers to the outside factors that will be considered, such as the
    local economic climate and conditions, both within your industry and in other
    industries, that could affect your business.

Are all these points weighed equally, or are
there certain points that are more important
than others?

Capacity/cash flow and character weigh
more heavily than the others. The ability
for a business to repay the debt is evidenced by the company’s cash flow.
Lenders will typically require a debt service
coverage ratio of at least 1.2x. That basically means that the company’s cash flow
needs to cover debt obligations by 120 percent. Banks are not in the business of having to liquidate collateral in order to be
repaid, thus, no matter what the collateral
is worth, if the repayment ability cannot be
documented, the loan will not be made.

How can a company show that it has good
character?

One way to determine good character is
through the credit ratings of the business
owner(s). A lender will typically require
the personal guarantee of any business owner who has a 20 percent or greater
stake in the company and will normally
investigate the personal background, credit history and personal references of this
individual. Past payment trends and references, especially if the references are made
by existing customers who are already well
regarded by the bank, are excellent measures of character. A Dun & Bradstreet
report can also provide insight into a company’s payment trends.

I recommend that business owners apply
for credit with their bank first. Their
banker should have a better understanding
of their business and banking needs as
compared to a banker with no previous
history or knowledge of the business.

What are the different types of loans businesses typically utilize, and how are they
used?

Most common types of conventional
commercial loans are asset-based lines of
credit, commercial real estate loans
[investment and owner-occupied] and
equipment loans.

Lines of credit are used to finance short-term working capital needs, such as the
acquisition of inventory/raw materials and
financing of accounts receivable. It is very
important that they revolve properly.
Banks want to make sure that the borrower is using the funds to acquire assets that
will be quickly converted to cash and that
the cash is then used to repay a portion of
the credit line. This is heavily weighed
when it comes time for renewal of the line
of credit, which is usually on an annual
basis.

For investment commercial property, the
primary source of repayment is usually the
rental income from the property. For
owner-occupied properties, the primary
source of repayment is the cash flow from
the business.

Equipment loans are usually for a short
term and are structured in accordance
with the useful life of the equipment.

FRANK MUNIZ is vice president and commercial relationship officer of Banco Popular. Reach him at (305) 938-0143 or
[email protected].

Protect your identity

Have you ever carried on a conversation with a new acquaintance
about your family, home and job?

While such topics seem common and
friendly, thieves use very casual conversations such as these to obtain information they need to compromise your
identity.

“Identity theft is currently the most
common type of theft,” says Joe Pardo,
AVP facilities/security officer with
Banco Popular. “It is popular because it
becomes very easy to assume someone’s
identity with very limited information. It
is also easy to repeat this type of fraud
once a thief knows the type of information that they need to obtain to be successful.”

Smart Business spoke with Pardo about identity theft, check fraud and
how consumers can protect themselves
and their assets.

What are preventive steps consumers can
take to protect themselves against identity
theft?

With identity theft, the elderly and
financially inexperienced are typically
preyed upon because they reveal too
much personal information. The single
most important thing for consumers to
remember is never to release any personal information to people you do not
know or on Web sites with which you
are not familiar.

It is also important to never release
personal information to people over the
phone, especially if the call was not originated by you. Most thieves originate fictitious phone calls to obtain personal
information. It is crucial to confirm the
validity of a phone call. When possible,
call the individual back so you can confirm the company, location and number
from which he or she is calling.

The Internet poses a problem in itself.
Thieves are creating bogus Web sites to
sell fictitious material to steal consumer
information. The merchandise is never
sent to the consumer but the person
operating the Web site steals all of your personal information. One should only
use secured Web sites. These can be
identified by a lock icon that will appear
on the screen when you enter the site.

Are there different preventive measures
used for check fraud?

Today, the best way to pay for goods or
services is by credit card or debit card. If
you use a check to pay, thieves have all
of the information they need to create
counterfeit checks. Information such as
your name, address, phone number,
bank name, account number and routing
number can all appear on your check. If
that check is lost or stolen, that information can be compromised with very little
effort. To protect yourself, you should
try to be as paperless as possible. When
you order checks, it is in your best interest to only have your name placed on the
checks to minimize the possibility of
check fraud.

Many people also have overdraft protection where if funds in your checking
account are depleted money is pulled
from another account linked to that
account. If you have such a system in place, a thief can deplete funds from
both your checking and savings account
before you even know your information
has been compromised.

Do you feel consumers are properly protecting themselves?

I think consumers have become more
aware. The government is also on the
side of the victim, which helps in most
cases. Remember, it is OK to scrutinize
the people with whom you do business.
It is OK to look for companies who have
been established with a good reputation
for many years. This can provide a sense
of relief when it comes time to release
your personal information.

The Better Business Bureau is a great
guide when it comes to selecting companies. This recognizes companies that
have upheld certain standards and met
consumers’ needs to the best of their
ability.

Is there a foolproof way to protect oneself
against identity theft?

No, there is no foolproof protection,
but as long as you are active in your
accounts, you can properly manage all
assets.

  • Reconcile accounts at least once a
    month. This way all transactions can be
    reviewed and fraudulent activity can be
    stopped.

  • Do not leave documents with personal information lying in open places,
    such as purses, briefcases or by your
    front door. One document is all a thief
    would need to retrieve all your personal
    information.

  • Find information on the Web site
    www.ftc.gov/bcp/edu/microsites/idtheft.
    This site provides access to preventive
    steps as well as claim forms, ID theft
    forms, forms to file fraudulent transactions and many other tools.

JOE PARDO is an AVP facilities/security officer with Banco Popular. Reach him at (786) 953-1259 or [email protected].

Leadership in the zone

Leaders are running out of time — at
the end of the day, the end of the
week and the end of the quarter. Time demands on leaders are high and still
climbing.

“Everywhere they turn there is someone
or something requiring leaders to invest a
few minutes, an hour or even longer,” says
Dr. Robert C. Preziosi, professor of management for the H. Wayne Huizenga
School of Business and Entrepreneurship
at Nova Southeastern University. “This is
the case at all levels of leadership in business, government and not-for-profits.”

Smart Business asked Preziosi what
makes a good leader.

What’s the solution for leaders?

Leaders need to work in a zone. Years
ago, Andy Grove, former chairman of
Intel, wrote that leaders should work only
in areas of the business that were of high
value — productivity, quality, service and
cost control. In my own activities in business and, now, academia, I have followed
his advice. He was right on target. Focusing on high-value areas has not only
led to real impact on organizations, but
my personal job satisfaction has been
high. It was clear to me that focus on certain areas was the path to successful leadership. I began to think about being in the
zone.

Where did this thinking take you?

I decided that there must be more than
areas to focus on. Leadership is about
behavior. Leaders who commit to certain
behavior over and over add more value to
the organization. Of course, these behaviors were chosen after considering alternatives and observing the impact that the
behavior was having on others. I thought
of this as leadership in the zone. I decided
to take this idea of a zone to the next level.

What are the implications for leaders in the
zone?

Leaders who operate in the zone get
more accomplished. The high-results-oriented behaviors are the ones leaders choose to use. Any behavior not in the
zone is delegated. In some cases, a leader
may even decide that this behavior wasn’t
even necessary. I remember reading a few
months ago about a CEO who realized
that he was spending more than half his
time on customers who brought in about
7 percent of the business. Once the realization sunk in, he began to have others
deal with those particular customers. So
the major implication is that he made a
shift in time-utilization patterns. He
focused on other behaviors that he hadn’t
been devoting enough time to. He worked
more in the zone.

How did you build the zone?

I collected information from more than
20,000 executives, professionals and
entrepreneurs over a 25-year period.
These people worked in organizations
like American Express, Burger King,
Citibank, the FBI, General Electric, IBM,
Intel, IRS, Marriot, Royal Caribbean
Cruise Lines, Walgreens and Walt Disney
World. I knew each of them as a graduate
business student, ranging in age from 25 to 66 years old. I read papers that they had
written about their organization. I was
able to identify 12 key behaviors and 12
values that were commonly found in what
they had said about their organization. I
put all of that together along with my own
successful leadership experiences in business, not-for-profits and academia into a
recently published book, ‘The Leadership
Zone.’

Can you provide an example of a zone
behavior?

One of the behaviors that I feel is the
most important is ‘establish a productivity
management system.’ Peter Drucker
called that the biggest management challenge of the 21st century. This is why I
chose this particular behavior. The chapter is a presentation of dozens and dozens
of productivity management behaviors
that leaders need to hold themselves
accountable for. The objective is that
these behaviors will permeate all levels of
leadership so that the entire organization’s leadership acts are within the zone.
This will certainly require some leadership training. Some training in this area
for nonleaders will be needed, also.

What about the values?

As I mentioned, there are also 12 values
in the zone. They are identified and discussed but not in the same detail as the
behaviors. This is not meant to lessen
their importance. The values are just as
significant as the behaviors. However,
each organization needs to define the values from its own perspective and ways to
operationalize them. The behaviors in the
zone are more universally valid. They are
akin to best practices. And that is what
Leadership Zone is all about. It is a tool kit
that the best leaders use to bring out the
best performance possible in employees
so that their organization is one of the
best. <<

DR. ROBERT C. PREZIOSI is a professor in the H. Wayne Huizenga School of Business and Entrepreneurship at Nova Southeastern
University. Reach him at (954) 262-5111 or [email protected].

Help is available

Business owners are often a one-man
show. They are creating and/or running a business, managing business assets, building for future growth, and
managing employees as well as personal
lives and families. For many, this can
become overwhelming, but to hire assistance is a cost that some cannot afford.

“While all business owners have business accounts at their bank, not all business owners utilize the services that are
included with business banking,” says
Nelson Lopez, assistant vice president
and assistant branch manager with
Banco Popular. “These services are free
and can only help the growth of your
business. Banks can be a one-stop shop
for business owners. They can save time,
money and energy by utilizing services.”

Smart Business spoke with Lopez
about business banking and basic services owners should utilize to help the
growth of their business.

Why should business owners utilize all the
services of business bankers? Shouldn’t
they hire other experts for advice?

Business owners will likely acquire a
slew of experts to help them manage
their money, assets and business as they
grow. Businesses that are still in the
infancy stages may not have that many
experts on board yet, so business bankers
become an integral partner in the growth
of your business.

No matter the stage of your business,
bankers are free consultants who can
offer advice and references that are crucial to the success of a business. With
time, a relationship with a banker will
grow so he or she can help anticipate
what your business will need in the future
and help you prepare. Business bankers
can relieve unnecessary stress.

What services can business bankers offer
business owners?

Business banking services include
cash management services. There may
be slight variations among banks but they should all offer Internet banking
services. With today’s technology, a business owner should be able to do his or
her banking from any location. This
saves the business owner time as he or
she does not have to visit a banking
branch to make deposits, send wires,
place stop payments or transfer money.
Banks can also provide business loans
and access to money markets.

Bankers can also help owners create a
business plan for the growth and future
of their business. This helps an owner
plan for retirement and the potential sale
of his or her business.

Why is it important to open a business
account instead of just using a personal
account?

For accounting purposes, it is recommended to have business and personal
activity separated.

Business accounts offer more features,
such as cash management, merchant
services and sweep accounts. Such
accounts take a certain amount of the
money from your operating account at the end of the business day and invest
funds in a short-term investment product overnight to maximize a return on
otherwise idle funds.

What type of business loans should a company utilize, and how does it qualify?

There are typically two types of loans
for business owners. The first is a line of
credit, which is similar to a credit card.
There is money available for the business to use, but interest is only paid on
the outstanding balance, not on the
entire loan amount.

Term business loans should be used
when you know the exact amount of
money needed. With such loans, you pay
on the principal and the interest. The
credit of the business owner and the
business must be evaluated; payment
history is considered as well as overall
financial status.

How do money market accounts help a
business’s bottom line?

A money market account is a sophisticated name for a savings account. A
business owner should meet with his or
her business banker regularly to determine when there is enough money to
move into such accounts to start accruing interest.

There are different regulations for utilizing money in a money market
account, but if used properly, they can
help increase profit. Business owners
should make sure they understand all
details of products before utilizing any
cash management services.

NELSON LOPEZ is an assistant vice president and assistant branch manager with Banco Popular. Reach him at [email protected] or
(954) 742-4296.

A better future

Have you ever thought of starting your
own business or purchasing additional land or property? Many people share similar dreams but do not believe
they have the financial means to make
these dreams a reality.

Small Business Administration (SBA)
loans were designed to help make these
dreams a reality. Without this program in
place, individuals would find it very difficult to obtain financing to start a new business or acquire an existing business as
most lenders would not otherwise finance
without a government guarantee in place,
says Jeffrey Katz, assistant vice president
and development officer for Banco
Popular.

Smart Business spoke with Katz about
SBA loans and what they can offer business owners. Katz also gave some insight
into the potential pitfalls of these high-risk
loans.

What are SBA loans?

SBA loans are government-guaranteed
loans made by participating lenders for
qualified individuals seeking financing to
purchase an existing business, start their
own business, finance commercial real
estate or to provide working capital to
existing business owners. These loans are
actually funded by the lender, with the SBA
guaranteeing a portion — usually 75 percent — of the loan amount. Lenders who
participate in providing SBA loans are
under an agreement with the government
to originate, service and liquidate loans in
accordance with government [SBA] regulations, policies and procedures.

SBA loans are riskier loans that give the
working class the ability to start new businesses and help the economy grow.
Because these loans are risky, the individual is required to pledge personal assets to
guarantee the loan.

The interest rates on SBA loans are typically three to four points higher than regular
conventional loans. These loans are riskier
and, therefore, demand a higher premium.
Most people in the working class looking to
start a business cannot obtain a conventional loan.

Are there different loan programs offered,
and what are the qualification standards?

There are several different programs
available depending on what kind of
financing an individual or business is looking for. The two most common are the following:

1) SBA 7(a) Program: Geared toward
financing business acquisitions, start-ups
and working capital.
2) SBA 504 Program: Geared toward
financing commercial real estate or large
asset purchases.

The SBA does have several other programs geared toward specific purposes.
For example, an SBA Disaster Loan assists
those businesses affected by a natural disaster, such as a hurricane or earthquake.
The SBA also provides loans for agriculture under a separate program.

To qualify, individuals must demonstrate
solid credit, character, and relative or
direct industry experience. One should
have a business plan, projections, timelines
and basic industry research compiled that
can be presented to a lender. The more
confident a lender is in your plan, the more
likely you are to receive the loan.

It is important to note that anyone applying for an SBA loan must either be a U.S.
citizen or permanent resident to qualify. An
individual living in the U.S. on a temporary
visa will not qualify for SBA financing.

How do these loans help the growth of small
businesses and the economy?

Whether you wish to purchase an existing business or start a new business, the
flexibility of the program allows you to
make your dreams a reality. SBA loans are
an instrumental piece of our national economy. They are the catalyst for the growth
of small businesses in America. With this
growth, comes more employment opportunities. Without these loans, small businesses would become extinct.

What are the risks business owners need to
be aware of when utilizing SBA loans?

I don’t think there are any risks associated with SBA loans that aren’t associated
with any other form of financing. However,
it is important that people understand that
these loans must be personally guaranteed.
Should a borrower default and face liquidation of his or her SBA loan, he or she is
in a position to lose personal assets.

With proper planning and projections,
SBA loans can be the link one needs to success. For guidance, you should contact a
local SBA office to determine what program is best suited for you financing
needs.

An SBA officer should have a deep understanding of the SBA and the related products that he or she is offering. Good bedside manor is an important characteristic
in an SBA officer. For business owners,
there is a significant amount of resources
and risk on the line. You need someone
who is concerned and sympathetic to your
needs throughout the entire process.
Professionals should help you understand
what you are signing and how you got to
those terms.

JEFFREY KATZ is assistant vice president and development
officer for Banco Popular. Reach him at [email protected] or (954)
517-1973.

Emergency funds

When unexpected repairs are needed or weather-related disasters
strike a community, often associations are left trying to fund projects that
require immediate attention. Associations,
such as condominiums, homeowner associations and co-ops, require different loan
options for these circumstances than individual homeowners.

Many associations do not set aside
money for such repairs (replacement
reserves) or funds for emergencies; they
simply pay for the situations as they arise.
Often these repair costs are too large for
associations to pass on to unit owners in an
upfront special assessment.

“Popular Association Banking (PAB)
allows associations to make the repair
today while giving the unit owners breathing room to make payments over a 10- or
15-year period without depleting their individual funds,” says Molly Hime, senior vice
president of division executive community
association products and services for
Banco Popular.

Smart Business gained insight from
Hime about how associations can properly prepare for everyday repairs and unforeseen disasters.

What is Popular Association Banking?

PAB provides services and products, both
deposits and loans to associations on a
nationwide basis for essential projects, such
as a new roof, painting, waterproofing and
concrete restoration. Often these loans are
the best financial option for unit owners
because they can distribute the cost over a
period of time. These are for groups who do
not have sufficient cash on hand to pay for
the project they would like to complete
now.

PAB services also include financing on
insurance premiums. One hundred percent
financing is offered, which became essential when insurance premiums increased
sky high a few years ago. This financing
allowed associations to keep coverage
while amending their monthly budget for
the shortfall between the anticipated premium and the actual invoice.

Why are these services so beneficial or
important to associations?

Loan services are a safety net for associations. No one can predict disasters and
the estimated cost of repairs can vary over
time. A perfect example occurred when
the city issued an evacuation order to a
community association because the balconies were not safe. The residents could
not live in the units until the balconies
were repaired.

This meant the unit owners were faced
with a large expense to correct the balcony
deficiencies. The association board was
able to go to the unit owners with a loan
that allowed for the completion of repairs
immediately with a repayment schedule
over a period of time. This helped the unit
owners and prevented them from having to
tap into their savings for funds.

As well as the standard deposit and cash
management products, their lockbox service offers solutions for bill payments and
other ‘exception’ items, thus affording
greater efficiency in processing maintenance payments. The depository products
addressed the special needs of the customers; they became part of a network of banks to ensure FDIC customer’s deposits in excess of $100,000.

How do you recommend community association leaders plan for repairs/replacements?

The association should have a reserve
study prepared and periodically updated
by a professional reserve study analyst.
Associations should also establish a
finance committee. The members on this
committee should look at the current and
potential needs of the association and then
approach their banker to ascertain what
products can help to achieve their goal. An
experienced banking staff and flexibility
are essential to structuring a loan or
deposit plan that will work for the customer and the bank because no two associations have the same needs or problems.

How do you recommend associations prepare or budget for weather-related disasters?

Most professionals serving this industry
recommend that associations develop a
comprehensive plan in case of a disaster,
including response efforts and a financial
plan. Associations should contact their
bankers when developing this plan and
inquire about a contingency line of credit.
This would ensure that, if a disaster
occurred, a loan facility would already
exist for the association to utilize. A resolution should be drafted by attorneys that
appoint certain members of the association as the designated members responsible if a disaster occurs. This way, the correct people have the authority to react.

It is also important to have proper documentation of assets. Video and other types
of documentation covering all assets
should be updated regularly and stored in a
secure location. Understanding insurance
coverage, the exclusions under the existing
polices and the communication of this coverage to unit owners is essential.

MOLLY HIME is senior vice president, division executive community association products and services, for Banco Popular, a
U.S.-charted banking institution. Reach her at (800) 233-7164
x431268 or [email protected].

Understand the housing market

Buying a home can be a scary and
intimidating challenge. As with any
major purchase, it requires preparation and research. It is important for buyers to make sound decisions based on their
needs. One must research the market into
which one is entering.

“It is a buyer’s market,” says Maggie Vega,
Regional Mortgage Sales Manager with
Banco Popular. “A buyer’s market means
that the buyer is controlling or leveraging
the property negotiation process. This
occurs when there is a high inventory of
properties available for sale while there is
a depreciating market.”

The current housing market has an
excessive inventory. While this is excellent
news for first-time home buyers, it does
not mean that research and preparation
are not required. All home buyers, whether
they are first-time buyers or have been in
the market previously, must read all the
details of the transactions presented to
them in form of contracts.

Smart Business spoke with Vega about the
information first-time home buyers need to
understand prior to making their purchase.

What do first-time home buyers need to know
before they purchase a home?

First-time home buyers need to understand the importance of the following
aspects and work to achieve these goals
before they purchase.

  • One must save properly for a down
    payment and closing costs. A first-time
    home buyer should have from 3 percent
    to 5 percent for a down payment.

  • Pay all outside debts on time.

  • Work to eliminate excessive debts.

  • Strive to maintain a good credit score.

  • Understand your limits. You must
    know your affordability. Can you afford
    your dream house?
  • There is a rule of thumb that real estate
    professionals use that says you can afford a house that costs up to two and half times your annual gross income. For
    example, if your annual gross income is
    $75,000, you can afford to buy a home at
    no more than $187,500. You could purchase more depending on your outstanding debt.

    How can someone determine if buying a
    home is the right decision?

    Buyers must realize there are advantages and disadvantages to buying.

    Advantages to ownership:

    • Fulfilling the American dream of
      homeownership

    • Owning a home is a long-term investment.

    • In an appreciating market, as you
      pay down your mortgage, you are creating ‘equity’ in your home.

    • Over the long term, your home
      increases in value.

    • Tax benefits with the deduction of
      interest and real estate taxes paid on the
      mortgage

    Disadvantages to ownership:

    • High cost of the monthly mortgage
      payments in comparison to monthly rent payments, which may be much less

    • Decreased mobility. Relocation is
      not as easy as when the first-time home
      buyer was renting.

    • Repairs and maintenance, such as
      mowing the lawn and home repairs, are
      at the owner’s expense.

    • Possibility of foreclosure if the first-time home buyer fails to pay the monthly payment and defaults on the mortgage.

    What mortgage options do first-time home
    buyers have and what should they avoid?

    The mortgage options available to the
    first-time home buyer are: fixed-rate
    mortgages, adjustable-rate mortgage
    (ARMs) and FHAs [Federal Housing
    Administration loans].

    First-time home buyers should avoid
    an adjustable-rate mortgage. The interest rates on these types of mortgages are
    adjusted from time to time to bring them
    in line with the changing market rates.
    This means that when the interest rate
    goes up, the monthly mortgage payment
    goes up.

    A first-time home buyer may be interested in an ARM if they are confidant
    that their income will increase sufficiently in the coming years in order to
    comfortably handle any increase in the
    rate and subsequent monthly mortgage
    payments.

    MAGGIE VEGA is a Regional Mortgage Sales Manager at Banco
    Popular. Reach her at (786) 953-1175 or [email protected].