In today’s regulatory environment, banks are no longer lending based on collateral; they are focusing more on business history, the owners, their future plans and how they’ll repay the loan.
“A business plan is an excellent way to tell bankers about the story behind the numbers and let them know you have a good handle on the future of your business,” says Betty Uribe, executive vice president for California Bank & Trust.
Smart Business spoke with Uribe about how to develop a business plan to increase your chances of obtaining a business loan.
Why are business plans important?
When presenting a loan package to a lender, an organized, well-thought-out business plan can make the difference between getting and not getting the loan.
A business plan will show the lender if the business has a chance of making a profit and in what time frame. It also provides a well-thought-out estimate of how much the business needs to grow and defines the market, customers and the percentage of the market the business plans to reach, providing a clear revenue estimate. Importantly, a business plan can convince the lender to fund your business and show them potential issues and how they’ll be addressed.
What are the steps involved in creating a good business plan?
Start with an outline and fill in the blanks as you learn more about the process. Your plan should be only as big as necessary for your firm to run smoothly. In fact, the outline alone may suffice, particularly if you are not submitting the plan in a package to obtain financing.
Many seasoned entrepreneurs calculate a break-even analysis to predict future viability in their respective fields. This is a formula based on the relationship between revenue, fixed costs, variable costs and profit. The analysis can show you how much money you must bring in to stay solvent.
Another preliminary tool is a feasibility plan, a basic document that features a summary, mission statement, market analysis and required success factors. It also might include an initial cost analysis addressing pricing and potential expenses. This can help you determine whether starting a business can work for you.
What resources are available to help?
An abundance of user-friendly business planning software is available that is designed to help strategize, sort and calculate related financial data.
Also, agencies like the Small Business Administration and SCORE, the Service Corp of Retired Executives, offer detailed information on developing a solid plan.
How do you get started?
Most experts outline 10 key components for a basic business plan. Key components include:
• Cover sheet
• Table of contents
• Executive summary
• Company description
• Product or service description
• Market analysis
• Strategy and implementation
• Management team
• Financial analysis
What should a business owner do with the business plan once it’s written?
Start by recording overall business or long-term goals on a spreadsheet, setting the bar high enough to grow. Make sure your goals are specific, measurable, attainable, relevant and time-bound (SMART). They must be easily identified, quantified and understood by you and your management team or you won’t know when you reach them. Also, set quarterly, monthly, weekly and daily objectives, then record your progress but don’t share or discuss goals with negative individuals who might impede progress. Lastly, keep asking yourself, ‘Does this decision take me closer to my goal?’
Growing a business takes commitment and systematic planning. Educate yourself. The more you learn about your industry, competitors, finances and time management, the greater your chances of success.
Betty Uribe is executive vice president at California Bank & Trust.
For a full scope of tools and information through to help businesses get started, visit www.calbanktrust.com/team. Another valuable source of information for business owners is at www.calbank trust.sbresources.com.
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Doing business with a large bank may seem like an attractive option for a growing business. But at a large bank, a smaller business can get lost, as some banks are increasingly turning their focus to larger customers, says Kevin Ball, head of commercial lending at Lorain National Bank.
“A local bank can offer a number of unique value propositions, including experienced staff who are familiar with your industry, a flat organizational structure allowing access to decision makers and quick decision making and execution,” says Ball.
Smart Business spoke with Ball about how a local bank can tailor its services to your business’s needs.
How can partnering with a bank whose staff has decades of experience benefit a business?
That kind of experience is necessary in order to quickly understand a business and determine its needs and if the bank can meet those needs. Businesses often complain that banks take their information, then it takes forever for them to come back and make a decision.
If a bank can make a quick decision, even if the answer is no, and explain its reasoning, the relationship can be preserved, leaving the door open for future opportunities with that business. That sounds easy to do, but it is quite rare to find in the banking world.
How can industry-specific experience help a bank serve businesses?
If a bank has done a lot of business in a certain industry, its bankers have built up experience with and knowledge of that industry. Because they see different companies in the same industry and know how things are done, they can provide more than banking solutions; they can also provide insight into that industry and advise a business owner on something he or she may not have thought about.
Bankers at smaller, local banks are also more likely to sit on boards in the community. They are deeply ingrained in the communities they live in and attend functions and get to know the community’s business leaders. This can help them spot potential needs and allow them to talk with potential clients about their needs before they even walk into the bank.
What are some other pieces of the value proposition of a local bank?
A smaller, local bank doesn’t have layers of management and is more streamlined than a national or international bank. Bankers can visit a business owner and bring with them the head of credit, or the president. Those are the decision makers, and that gives them the opportunity to really get to know your business. There aren’t many large banks where you will get that kind of personalized attention.
In addition, smaller banks tend to be heavy participants in the SBA loan programs. That helps them mitigate some of the risks that might be involved in the transactions and can accelerate lending to small businesses.
How can partnering with a local bank help a business owner develop long-term relationships?
At a local bank with experienced bankers, business owners get to know their bankers. At larger banks, people are often trained by rotating them through departments, and business owners may speak with someone different every time they call the bank. Smaller banks are less likely to do that, and with an experienced staff, you are dealing with the same people every time you call, giving you the opportunity to build that relationship.
How do those relationships result in a better match of banking products?
It allows the bank to better tailor products to a business’s needs. The banker has time for work with individual businesses to find out exactly what they want and need, tailoring solutions to that, as opposed to a big bank approach, which often views smaller businesses as too small to do business with.
A lot of big banks say they’re lending, but they’re not. A business owner might find more success with a local bank, which will take the time to understand their business.
Are a local bank’s clients limited to the area?
Not necessarily. With today’s technology, the reach is broader. It’s no longer necessary for banks to have branches on every street corner. Modern treasury management provides the technology to scan items and use an Internet-based system. If you find a bank that offers great service and solutions that fit your business, its physical location isn’t as important.
How does the market for lending look going forward?
There is currently a good balance of activity and an increasing amount of optimism in the marketplace. Car dealers are having a great year so far, business is booming for some manufacturers and industrial space is starting to get tighter. Although the media tend to focus on negative stories, there are a lot of businesses that are thriving.
Kevin Ball is head of commercial lending at Lorain National Bank. Reach him at email@example.com.
Seventy-five percent of small businesses have expressed that their financial institution doesn’t effectively understand their needs. As a result of this dissatisfaction, the banking industry is moving to more of a relationship manager model to service the small business segment.
“Banks are hiring full-time relationship managers who have a number of small businesses that they call on,” says Gary Wright, senior vice president, small business banking executive, at Cadence Bank. “These relationship managers offer expertise in the ‘business’ of small business, and also bring an understanding of particular segments and industries that can be extremely effective in identifying the right solutions to meet a small business’s financial goals.”
You, as a small business owner, have a person to call on if you have an issue — rather than an 800 number — and that banker knows who you are and is informed about the issues impacting your business, he says.
Smart Business spoke with Wright about choosing a bank and how relationship banking can give business owners the best service for their financial needs now and in the future.
As you begin to shop for a financial institution, what should you consider first?
First, you need to give thought to why you need a bank in the first place. Are you looking for deposit services? Do you need cash management solutions? Are you looking for loans or sound advice regarding what it takes to qualify for a loan or a loan that best fits your needs? While it’s important to evaluate a bank’s pricing or incentives, also think about the overall banking relationship that the bank is offering.
Look for a bank that can grow with you as your business progresses. You may only need a business checking account today, but what might your business need in the next five to 10 years? Think long term — approach the decision as you would consider any long-term investment. Do research to find a bank that is fiscally sound and will be around long term, as the industry deals with increased costly regulations.
Size is important, too, especially when it comes to lending. Regional banks generally can offer you more competitive rates compared with local community banks, as well as less bureaucracy and more personalized service than larger institutions. Regional banks often offer the advantage of online banking and treasury management services that can help increase your company’s efficiency.
How can businesses benefit from banks that are relationship focused?
Relationship-focused banks are concerned with building relationships with small business customers by focusing on the long term and incorporating forward-thinking strategy. Their bankers take an interest in you and your business. They want to know how you got started and about the successes and challenges that led you to where you are. They really dig deep into the nuts and bolts of your company to learn your business and financial operations so they can offer solutions that are specific to your needs.
With a relationship focus, there’s greater accessibility. Working with a bank that knows you and your business can speed up problem solving, for example, as the bank already knows your company and can easily inform you about the different options that are available. The bank can match the solution to the need, rather than just pushing a product. That’s the whole point of building a relationship with the small business.
As a business owner, you may often be on the go and require banking services that allow you to bank 24/7, wherever you are. What sort of solutions should you look for?
Technology is one of the fastest-growing areas in banking. You should consider a bank that is committed to technology, such as:
• Online banking that provides businesses with access to business online banking and treasury solutions.
• Mobile banking. As the number of smartphone users grows, coupled with the countless demands small business owners face daily, mobile banking is increasingly becoming a necessity. Many banks offer mobile banking apps and specially designed mobile sites that allow small business customers to access online banking services using smartphones or tablets.
• Text banking, where you can text your request and receive details on your account almost instantly. You also can transfer funds from one account to another via text.
How does the bank provide cash management solutions that take into account a small business consumer’s needs?
Generally, treasury management solutions cater to larger commercial businesses, but many of these services are increasingly in demand by smaller businesses. Treasury management solutions now are being structured to affordably help small businesses with their cash flow processes and protect them from fraud. For example, remote deposit capture services can allow you to deposit checks to your business checking account from your desk and are designed and priced for businesses with a lower volume of checks.
Whatever services you need, the goal of the relationship manager is to help you identify and enact financial solutions that will help your business prosper today and tomorrow. Small business owners are busy juggling numerous responsibilities, and it’s valuable to have a steward that understands your business and can provide the tools necessary to make the right
Gary Wright is a senior vice president, small business banking executive, at Cadence Bank. Reach him at (713) 871-3970 or firstname.lastname@example.org.
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Banks have been dealing with evolving regulations for as long as banks have been in existence. So while the Dodd-Frank Wall Street Reform and Consumer Protection Act has given some in the banking industry cause for worry, the critical issue is how institutions will evaluate the potential effect and cope with increased regulations. While some banks might buckle under the threat, others will adapt to the new laws and regulations without allowing the complexity and costs of compliance to become an impediment.
“Savvy institutions recognize that the key is aligning their adjustments with their business models and processes,” says Jim Stempak, a principal at Crowe Horwath LLP. “By integrating compliance with normal business operations, banks stand to extract greater value from their business processes.”
Smart Business spoke with Stempak about how banks can find opportunity in new and revised regulations where others find dismay.
What regulations must banks be prepared to deal with in the near term?
Compliance officers are struggling with the efforts of bank regulators as they implement regulations under Dodd-Frank. Banks do not know what to expect from future regulatory examinations or where examiners will focus, so those expectations remain a moving target.
Questions also remain about the range of authority of the Consumer Financial Protection Bureau (CFPB), the agency established by Dodd-Frank. All banks will be directly or indirectly affected by CFPB rulemaking. Some will be required to work with this new agency’s examiners, who will be conducting exams and assuming responsibility for consumer compliance regulations in certain banks (those with more than $10 billion in assets). The CFPB is in the process of bringing its employees up to speed on the agency’s mission. Banks, however, are waiting without clear direction regarding the scope and timing of the CFPB examination process and how the new agency will coordinate efforts with other federal bank regulatory agencies. Financial institutions will be forced to contend with this environment of uncertainty for quite some time. Meanwhile, there are some measures that banks can take now that will allow them to successfully navigate this changing environment.
How have banks historically coped with increased regulation while managing to stay successful?
As the dust settles on Dodd-Frank’s initial effects, banks can begin to see that successful adaptation comes down to taking a measured and systematic approach to integrating the requirements with normal processes, often using enhanced technology. However, a silo approach to compliance is unlikely to succeed. Saddling the compliance officer with the sole responsibility of adapting to this new reality is unrealistic. Instead, success requires that key managers throughout the organization get on board. Line-of-business managers, for example, will need to integrate Dodd-Frank compliance into their daily activities, while IT managers will need to adjust existing technology platforms to integrate processes that facilitate compliance, or possibly design entirely new processes and technologies.
History offers examples of how banks learned to turn difficult regulatory requirements into opportunities. Take, for instance, the Know-Your-Customer (KYC) identification programs required by Bank Secrecy Act (BSA) regulations. This mandated banks to catalog their customers’ banking activity to better identify suspicious behavior. To do this, some banks used the information they gathered to develop a profile of each customer.
Another, more effective, approach manipulated existing processes and technology platforms to better gather information while sending a message to each customer that outlined how the bank’s inquiries were intended to better understand each customer and provide him or her with personalized products and services. As a result, the customer experience was improved, new accounts were opened in less time and many cross-selling opportunities became available to the bank. The customer service enhancements were in addition to establishing a solid platform for efficiently and effectively complying with the regulatory requirements.
Similar to what was done for KYC compliance efforts, information obtained through Dodd-Frank mandated data collection also likely will provide opportunities for banks to use the information for marketing and other value-added opportunities. By ingraining the requisite activities in their existing processes, banks were able to successfully adapt to the regulations rather than treating them as if they were burdensome compliance activities.
How can organizations best cope with complying with these regulations?
To facilitate compliance with new or revised regulations, organizations should develop cross-functional teams that alert the organization to changes that are likely to be required or that are coming. Teams can begin to develop strategies for implementing new or revised processes and technology. This will necessitate involvement from thought leaders from all levels of the organization, rather than taking an approach focused solely on compliance. Teams should develop a client-focused experience that also improves product development and existing processes as they work to bring the organization into compliance.
When dealing with certain consumer lending regulations, the team should consist of management representatives from areas including mortgage origination, consumer lending, regulatory compliance, IT and marketing. Teams should coordinate efforts to monitor specific regulations that affect consumer financial products, analyze the customer’s fit with the product and deliver products fairly to all consumers. This is especially important considering CFPB will be carefully evaluating compliance with new and revised regulations for consumer financial products, including mortgage loans.
Every financial institution will be touched by the regulations and it is up to banks to take an integrative approach to compliance to make a smooth transition while positioning them to take a competitive advantage. This will allow them to comply with the regulations while simultaneously advancing their business.
Jim Stempak is a principal at Crowe Horwath LLP. Reach him at (214) 777-5203 or email@example.com.
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