In lending, there are different ways to garner a real estate loan. Typically, people think only of banks, but loans are available from multiple sources, including pension funds, life insurance companies, credit unions, Wall Street and the government.
“There are lots of ways to get loans,” says Terry Coyne, SIOR, CCIM, an executive vice president with Grubb & Ellis.
Depending on the size and type of the investment you want to make, there are many different loan vehicles to help fund your commercial real estate purchase, he says.
Smart Business spoke with Coyne about what options exist to fund a commercial real estate purchase, from both an investor’s and an owner/occupier’s perspective.
What is important to know when it comes to financing commercial property?
In the commercial property market, if you’re an investor, you have a different goal than if you are an owner/occupier. An owner/occupier is much more interested in paying off the building and getting rid of debt, while an investor is more interested in cash flow.
Owner/occupiers are at the top of the pyramid as far as desirability to a lender because lenders like owner-occupied buildings. It gives them the security that the loan was used for the purpose for which it was intended and that there isn’t an absentee landlord. In addition to conventional bank loans, owner/occupiers can also harness life insurance, pension funds, commercial mortgage-backed securities, Small Business Administration loans and possibly opportunities from the state government, depending on the intended use of the commercial property. For instance, if you’re a manufacturer, you might qualify for the Ohio Enterprise Bond Fund, which is tax free.
How can owner/occupiers determine the right funding vehicle for their situation?
Typically, you will have a relationship with a bank, and that will help you get financing. There are also mortgage brokers who are paid to handle your entire transaction. There are many different companies in Northeast Ohio you can go to that will handle all of the applications and work with banks and other resources to come up with a solution.
But it really depends on your goal. For owner/occupiers, the bank you use for your daily needs is typically going to give you the best loan. That lender is often hard to beat because it knows you and wants to expand the relationship. However, you will probably end up with a recourse loan, which means you’re signing personally and the bank can come after you for your personal assets in the event of nonpayment. While bank loans will have the lowest interest rate and the highest loan-to-value, they’ll also typically have the highest risk because you’re signing personally.
How can investors assist?
Investors that are buying a building that is fully occupied will have many of the same options as an owner/occupier but will likely be looking for a lower interest rate. Because you’re an investor, you’re used to putting equity in a deal, so you’re likely willing to live with a lower loan-to-value. Banks will give you more money — typically a higher loan-to-value — than life insurance companies and pension funds because you’re typically not signing personally, so they need to protect themselves. They’re making a loan purely against the real estate and not against your ability to pay.
What are the pros and cons of each lending product?
Typically, bank loans have a lower interest rate with a higher loan-to-value than other products, but you’ll likely have to sign recourse. Also, the prepayment penalty, or the penalty for paying off the balance of the loan early, can be an issue.
Life insurance and pension fund money are going to have competitive interest rates that are comparable to those offered by banks but have a lower loan-to-value. Although less money is being advanced on the loan, you’re not obligated to sign a personal guarantee.
Another aspect is the amortization. If you go to a bank, it wants to amortize the loan as short as possible — 15 to 20 years maximum. A life insurance company will, in some instances, go 30 years, so your payments will be much smaller.
SBA loans are government-backed and made through a bank. They offer a greater loan-to-value than any other product and have very compelling interest rates. Also, you’d likely get a greater advance.
Commercial mortgage backed securities are loans from an entity that sells loans as a bond, which can be publicly owned. These bonds comprise hundreds of loans, of which a person owns a share. This market was huge until the crash, when it was discovered that no one knew what types of loans — or the ratings the loans had — that were inside these bonds. The commercial real estate side, however, wasn’t guilty of concocting crazy loans packages like the residential side was.
This market is back in a big way. It offers cheap money with very good terms on loan-to-value, which could be comparable to what a bank might offer, with similar interest rates and more amortization. The downside is that you can’t prepay, because they’ve guaranteed the bond’s investors a return. This means that if you sell your building soon after purchase, you won’t be able to pay off the entirety of the balance immediately without going through a complex process.
Lastly, there are lenders that are not regulated but that have private funds, hedge or otherwise, that will lend money for commercial real estate. They act like other lenders, but you’re usually going to them because you have a unique need that can’t be met by conventional lenders.
A mortgage or commercial real estate broker could help you tap into this type of financing.
Terry Coyne, SIOR, CCIM, is an executive vice president with Grubb & Ellis. Reach him at (216) 453-3001 or firstname.lastname@example.org.
Insights Real Estate is brought to you by Grubb & Ellis
In today’s economic environment, businesses have to get the most out of their employees and remote banking allows employees to focus on tasks that benefit the business. By eliminating the need for them to leave the office to make deposits and handle other banking tasks, businesses can save time and increase productivity, says Stephen Klumb, senior vice president and chief lending officer for National Bank & Trust.
Remote banking also offers a high degree of accuracy and control because you’re handling your own transactions, you are able to keep a close watch on which transactions have occurred and when they are finalized.
“It’s almost like being your own banker,” says Klumb. “You’re making transactions, moving your money around, setting up automatic bill paying and handling your own deposits, all from your own office.”
Smart Business spoke with Klumb about the benefits of remote banking and how it frees businesses to customize their banking relationship.
Are companies limited to banking at the nearest location?
Some people have the mindset that walking into a physical location to service their banking needs is necessary. That may be true for retail customers, but from a commercial perspective, it really isn’t. Our commercial team goes to customer locations, and thanks to technology, we can do far more for them. Commercial customers can, for example, use a remote capture system to make deposits. With remote capture, a small machine at your business allows you to run checks through and get credit for the amount at your bank the same day.
Another remote banking option is Automated Clearing House, or ACH. This secure payment system allows your customers to send payments they owe you electronically from their bank directly to your bank account, speeding up your accounts receivable. You can also set up the reverse, allowing transactions to leave your account and be automatically received by your vendors.
How can a business keep track of its remote transfers?
Commercial banking customers can track their transfers with online banking. Those customers can sit at their computer, sign onto the bank’s website with total confidence that their information is secure and discrete, and transfer money and make payments.
When it comes to payroll, Positive Pay is an option in which no checks are paid until you release them, which helps eliminate the possibility of fraud. You can also get involved in Bill Payer, which sets up regular, automatic payments of bills, similar to what consumers use for personal use. Further, just as consumers can access cash and make deposits 24 hours a day through ATMs, so can businesses. Commercial customers can also use mobile banking on a phone for their business needs, and new apps are making this method increasingly popular.
Is there any reason a business owner would need a physical bank?
In regard to having a need for a physical bank, your commercial lender should set up meetings once per quarter to keep up with what’s going on with your accounts both past and present. But you can also go online, pull up your accounts, your transactions and your balances, and you’ll see the same things a branch manager sees. This service, and others, like Remote Capture, will minimize the trips made to a banking office.
In the event that you’d like to discuss a grievance, there is a number you can call that will put you in touch with a representative to handle it.
Most borrowers don’t call a branch if they have a problem with their commercial loan, they call their commercial lender. Your assigned commercial loan officer is available to handle any issues, typically within 24 hours, and can be accessed by cell phone and email.
Today, when closing loans, many lenders will go to the customer, as a lender’s office is usually his or her cell phone. Lenders will most often meet business owners where they work to close loans or review documents. There also may be occasions when a business owner might not want employees to know he or she is working with a bank, so lenders can meet them anywhere they’d like.
Are there costs associated with remote banking services?
Often, the costs associated with remote banking services are absorbed by the time and extra costs often incurred when not performing these activities electronically. Other costs may vary depending on banking activity and account relationships. Overall, most customers find remote banking services to be a very cost effective part of their financial practices.
How computer savvy do a company’s employees need to be to utilize electronic banking services?
Most companies on the commercial side have accountants or managers who are very knowledgeable when it comes to these things. And once they’re trained to use the systems, the benefits most often outweigh any anxiety.
However, to ensure a smooth transition, when a bank sells the service, it generally teaches customers how to operate them. For example, with remote capture, bank representatives will explain how to operate the machine when they bring it to the client’s place of business and they’ll leave a phone number for questions.
With online banking, there is a tutorial available to walk the user through the program, and in some cases, the person selling the service will take along a laptop to show those at the business who will be using the service how the programs work.
Stephen Klumb is senior vice president and chief lending officer with National Bank & Trust. Reach him at (800) 837-3011.
Insights Banking & Finance is brought to you by National Bank and Trust
If you’re a business owner looking to purchase a building to house or expand your business, you have a lot to consider. You’ve come to realize buying is better than leasing, and building equity in your own property is better than building equity for your landlord.
However, your real estate experience might only extend to purchasing a residential property, leaving you with questions regarding the potential benefits and misconceptions, if your business will qualify for financing and what is involved in the application process.
“Over 80 percent of applicants we work with are first-time commercial building buyers. Many come to us with a baseline level of knowledge of real estate, which is often limited to residential only,” says Ken Mannina, senior vice president and regional sales manager for Bridge Bank. “What these applicants learn during the loan process is that their objectives are consistent with those of the lender. The applicant wants a loan to purchase a sound economic asset that has utility and tangible value, and the lender wants to have as collateral for their loan the exact same thing.”
Smart Business spoke with Mannina about what business owners should understand about the process of purchasing commercial real estate.
What is the profile of a typical commercial real estate financing applicant?
They are business owners who seek financing for the purchase or construction of a building to house their business. About half of the applicants request additional financing for construction to go with the purchase. Most of them own closely held businesses that are not publicly traded but are owned by one or two individuals or a group of family members. They’re seeking to stabilize their occupancy costs and eliminate their exposure to escalating rents and dealing with landlords.
What types of businesses are looking for commercial real estate financing and why?
Banks work with all types of businesses, including manufacturers, service businesses, retailers, distributors, contractors and investors. These business owners have some commercial real estate objective in mind — buy a building, refinance a building, improvements or repairs, or buy out a partner in the building. As owner/users, there is heavy emphasis on U.S. Small Business Administration lending. In that type of lending, the leverage, or debt to equity ratio, that’s available to the borrower is high — up to 90 percent — which means you get more debt and require less equity.
When do the lender’s and applicant’s objectives coincide?
There are several that center on the property they’re buying. The lender will review a title report and order an appraisal and environmental report and possibly structural or mechanical reports. These reports provide the lender with data that will support or reject the negotiated purchase price while providing a good sense of the integrity of the property. For buyers, these reports will give them assurance that what they’re buying can, at some point, be sold and financed by a new buyer, thereby returning their initial investment; though that hinges on the market conditions at the time.
The lender’s approach to analyzing the property and assessing its value will involve quantifying the amount of rental income it can generate and reviewing the lease and sales comparables that are presented in the appraisal to confirm that they are suitable for valuing the property.
How can a business owner best prepare to purchase a commercial building?
The best way is with pre-qualification from your lender. In the case of a business owner, the underwriting and analysis focus on the business he or she owns. When they’re trying to purchase a building to house their business, their commercial real estate broker will require them to get a pre-qualification letter, which will be submitted with an offer to purchase. Much like residential real estate, a prospective buyer who is prepared and can demonstrate his or her capacity to borrow will be better received by sellers and brokers.
Are there misconceptions about commercial real estate financing?
Yes, one is that you need to make a 30 percent down payment to get a commercial real estate loan. However, through the SBA, you can get a loan with only 10 percent down.
Another misconception is that commercial real estate is too costly. When compared to residential real estate, commercial costs more because of its larger size, but the return on your investment may be greater. Also, a rent-versus-buy comparison that takes into account the tax benefits of ownership often reveals commercial real estate occupancy costs are less than renting.
Finally, there is a misconception about the importance of location. While it is critical in retail, it isn’t otherwise because commercial properties are purchased for their utility and income, not location or aesthetics.
What does a first-time buyer need to understand about financing a commercial real estate purchase?
When selecting a lender, clearly you’ll be looking at rates and fees, but first timers need to be educated on how they’re qualifying, how the transaction is going to proceed and what’s going to be asked of them. They can use the answers to those questions to set their expectations realistically regarding how much money they’re going to have to invest on the front end and how they’ll transition from a leased property to a purchased property.
The buyer also should be mindful of the fact that the due diligence performed by the bank during the underwriting process, like the appraisal and environmental reports, will server buyers’ needs as well as the bank’s needs. They can look to their lender to advise them on all those things.
Ken Mannina is senior vice president and regional sales manager for Bridge Bank. Reach him at (408) 556-8336 or email@example.com.
Insights Banking & Finance is brought to you by Bridge Bank
Integrated Project Delivery (IPD) is a method to take a project from design through construction. The key element of this, as opposed to some other types of project delivery, is you bring together all of your team in the beginning — your engineer, all of your general, mechanical, electrical and plumbing contractors, and your operations and maintenance staff who will take care of the property after construction is complete.
“You have them all at the table during the design process. It’s a new procedure to complete your project from the conceptual phase through construction and into occupancy,” says Alfa Tech President Tim Chadwick.
Smart Business spoke with Chadwick about IPD and how having owners, engineers and contractors synchronized through the design and construction process can lead to greater efficiency and a better end result.
How does IPD differ from other project delivery approaches?
In a typical design-bid-build approach, the owner hires the architect in the beginning and generally an engineer isn’t involved until after the programming and conceptual design are complete. Then the contractor is hired and the operations staff is brought in once construction is complete.
There is also design-assist, where a consulting engineer writes a basis of design, which is a rough outline of the system types and level of quality the owner is looking for, and hands it over to the contractors for more detailed design and construction. The engineer then takes a step back and oversees the project but generally from a distance.
Comparatively, IPD has a consulting engineer working all the way through the project, meaning you get a much better and more coordinated design without missing out on the contractor’s input. All of these team members can provide valuable input on the conceptual building design rather than having to react to decisions made without their input.
In design-assist, the engineer hands off the designs to the mechanical contractor to take care of his or her portion, then to the electrical contractor for his or her portion and so on. Contractors, however, don’t typically coordinate as well with the other contractors during this design. Engineers, on the other hand, often have all those engineering disciplines within one company, so you get much better coordination before installation starts.
Further, contractors can be forced to resolve issues that arise during construction out in the field, and compromises in quality, performance or serviceability can result. With IPD, having all the engineers within one entity and involved throughout the design results in a design that’s well conceived and an installation that has an organization that looks better, is easier to maintain and performs better.
What benefits does IPD offer over other forms of project delivery?
The real benefits can be seen when you compare it with design-build method. Many companies have been leaning toward design-build because the contractor is on board early; the assumption is the project moves at a faster pace because construction can get started early and their construction experience adds value. However, conventional design-build projects can be challenged by a lack of installation quality and flexibility as well as a lack of coordination that leads to a poorly performing system. With IPD you can get the speed of design-build coupled with the quality assurance brought on by having an engineer involved, making it the best of both worlds. The consulting engineer protects your interests and quality while contractors help you accelerate the construction aspect of the project.
What are the tangible benefits of using IPD?
In addition to resolving field conflicts before construction, having the contractor at the table during the design phase can help you avoid additional conflicts and delays, which means the final installation is more cost effective without sacrifices in quality. In design-build, circumstances can arise where you have to compromise such as when you have two systems routed through the same space — often a result of poor coordination at the front end. This leads to a compromise that could, for example, require that an exposed pipe is routed through an aesthetic part of your building or you have to move something else that needs regular maintenance to a place where it becomes hard to access.
The lack of coordination at the front end also could lead to more tangible losses, such as reduced energy efficiency when ductwork isn’t arranged in the best possible way, requiring more power to run the system. The IPD process can help you avoid some of the compromises you might otherwise have to make in quality, looks, performance or maintainability.
What cost savings are involved in IPD and how does this compare to design-build?
More cost certainty can be realized up front with the IPD system since you have all the players on board from the start, which gives you the all-in price very early. By obtaining buy-in from all parties on the design, a significant reduction in construction change-orders can be achieved.
You mentioned facility operation and maintenance staff being part of the IPD team. What does this mean?
One of the most common complaints after a construction project is complete is maintenance and operation staff expressing concern over how to maintain the systems. If they’re not represented at the table during the design phase, their concerns are often compromised. Having them involved helps appreciate their concerns while gaining an understanding of their knowledge of the existing systems. An engineer can design an elaborate control scheme, but if the staff’s capability to operate it isn’t there it might be wise to simplify. You might lose out on some efficiency, but it’s better to keep it relatively simple so your operations staff can run it.
Tim Chadwick is president of Alfa Tech. Reach him at (408) 487-1278 or firstname.lastname@example.org.
Insights Technology & Engineering is brought to you by Alfa Tech
Hiring can be a difficult, time-consuming process, but failing to take the time to do it right can be disastrous. Using a direct hire recruiter can assist an employer with the hiring process. These recruiters can serve as consultants and their immense knowledge of the local labor pool can help you choose the best candidates to fill your particular needs.
This investment can not only help prevent hiring errors, it can save time by eliminating the need to devote resources to screening candidates.
“A company may not be hiring every day of the year, whereas a direct hire recruiter is constantly talking with candidates,” says Michael Stanley, a recruiter with The Daniel Group. “This gives recruiters an expert level of knowledge of the pool of potential hires, compared with the snapshot that an employer might get during intermittent hiring periods.”
Smart Business spoke with Stanley about how to select a recruiting firm among the many that are vying for your business.
How do recruiters choose employees for clients?
Recruiters should work to discover the particular skill sets its client is looking for in a candidate to ensure the new hire matches an employer’s needs. This requires working from more than just a job description. Your recruiter needs to understand your culture and general atmosphere to gauge the intangibles that a potential hire might need to fit in, such as personality.
To achieve this, it’s important that the recruiter visit with an employer to get a feel for the environment. Have your recruiter meet with the hiring manager and visit your location to get a more detailed picture of the total work environment. This will greatly improve the chances of finding the right person for the job.
Also, during initial meetings, it’s important to convey to the recruiter what career path you expect the candidate to progress through. This will allow a recruiter to best match what the candidate is looking for with what you expect.
How can a company work with its recruiter to ensure it is getting the best employees for the position?
Ideally, companies should reach out to a recruiter during the planning stages of their hiring process, or about six to 12 months before they expect to bring additional employees on board.
When talking with your recruiter, be honest in terms of what you need in a candidate. The more information a recruiter has about a company, the position, and its short- and long-term goals for the employee, the better chance he or she has of finding the perfect candidate.
What if an employer is dissatisfied with the candidates being referred?
If the candidates being presented are not in line with what you’re looking for, be honest and offer feedback as to what needs aren’t being addressed. A recruiter will then reassess its approach and work to close the gap between what is being provided and what is needed.
In the event that a hiring decision has been made, some recruiters offer a guarantee that if the employee doesn’t work out, for whatever reason, within the first year, he or she will be replaced without charge.
What responsibilities does a recruiter have regarding the employees it selects for clients?
Recruiters take candidates through a full screening process that can be standard — criminal background check, salary verification and reference checks — or catered to the particular needs of an employer. Once the candidate has gone through screening, a recruiter will give the client a basic description of the potential hire’s skills and qualifications, as well as an off-paper account of the person.
While a recruiter works for the client, meaning its primary responsibility is to meet the client’s needs, a relationship is also established between the recruiter and the candidate. This means that not only will the recruiter be honest and up front with the person about the company, the position and what it entails, but candidates tend to be more honest with a recruiter than they are with an employer. This can help a recruiter dig deeper and discover personality traits and experiences not listed on a resume that can help determine who might be the better fit.
What cost savings are involved by working through a recruiter?
There are a lot of resources devoted toward filling a position, including personnel, time and money. Employers should do what they do best, which is run their business. The cost savings realized from working with a recruiter come from allocating resources that would otherwise have to be tied up in hiring to more critical functions.
Time saved is also a significant consideration. Recruiters can distill the candidate pool down to the top candidates for a position, rather than the employer having to review hundreds of unscreened resumes, which is incredibly frustrating and time consuming. Why screen 200 resumes when a recruiter can provide you with three or four that match the exact skill sets you’re looking for?
How can employers drill down to find the right staffing firm?
There are lots of staffing firms and they all deal in people. What sets staffing firms apart are the individuals who work for them. Having that direct relationship with a person you can trust and have had success with is important.
Also take into consideration the firm’s history, how long it’s been in the market and its successes in your industry. While an Internet search can offer an initial list of staffing agencies, it’s a good idea to ask a firm for client references to get a sense of its performance.
Michael Stanley is a recruiter with The Daniel Group. Reach him at (713) 932-9313 or email@example.com.
Insights Staffing is brought to you by The Daniel Group
Many businesses are interested in doing business internationally, but may not know where to begin. Ianni Palandjoglou, senior vice president, international, at Cadence Bank, says that regional banks can guide you through the process and mitigate risk while opening the door to global markets.
“Ultimately, engaging in international trade requires an accessible, informed and educated adviser capable of helping you navigate the embedded risks,” he says.
Smart Business spoke with Palandjoglou about how regional banks can help small to mid-sized businesses navigate the challenges of doing business on a global scale.
What is international banking?
From a regional bank’s perspective, international banking provides support to small and mid-sized businesses engaging in business globally in three primary segments: trade finance, trade services and foreign exchange.
Trade finance focuses on finding solutions for the needs of the exporter and the importer, with more emphasis on exports. Trade services facilitate various payment methods used in international trade, such as export/import letters of credit, documentary collections, standby letters of credit and open account shipment. Foreign exchange provides support in currency management risk using such tools as spots, forwards and swaps.
International banking differs from domestic banking in that it addresses the unique factors that can impact doing business abroad. These include political and economic risks, foreign legal systems and business practices, cultural and language barriers, infrastructure for distribution and other issues that could potentially hinder transactions. With more than three-fourths of total U.S. exports coming from small businesses, they can look to regional banks as an adviser that can address these needs and help improve operations.
What value does a bank bring to companies interested in engaging in international business?
Regional banks help their customers by serving as a counselor of sorts to understand their business while mitigating currency, country and payment risks. Also, by working through the Export-Import Bank of the U.S. (Ex-Im), regional banks can guide an exporter in obtaining insurance on foreign receivables or help it acquire working capital for pre-export on purchase orders with much higher advance levels on raw materials and inventory. What makes regional banks with an international department unique is they work with governmental agencies such as Ex-Im Bank and the Small Business Administration to provide different types of financing solutions to customers, which, in general, domestic institutions would not otherwise be able to offer.
What advice would you offer a company that is looking to import or export for the first time?
From an exporter viewpoint, the appeal to go global is attractive. It offers the potential to increase and diversify sales, spread risk by expanding into a variety of markets, extend your product life cycle, and ensure your global competitiveness and adaptability. However, there are things you need to address when working internationally, such as getting to know your buyer well, structuring your sales to protect your money and your assets, learning the various methods of payment in international trade, buying insurance on your receivables or selling only under a letter of credit, and getting to know the Department of Commerce.
The government, including the DOC and 19 other agencies, has undertaken a very strong initiative to increase exports. These agencies are working to promote U.S. exports and can provide information and grants that allow you to attend conventions and seminars held outside of the country that can facilitate meetings with potential buyers and partners.
What role do the Ex-Im and the SBA play for U.S. businesses looking to trade internationally?
They are critical. Without these agencies, regional banks in the U.S. would not be able to provide financing for domestic borrowers because banks would not be able to mitigate the risks involved. These agencies provide guarantees to U.S. banks so they can lend on export-related purchase orders under the working capital guarantee programs, which cover 90 percent of the export risk for performance and disputes, as well as political and commercial risk.
Some regional banks, like Cadence Bank, have delegated lender status with the SBA and Ex-Im, meaning they can approve export capital working loans up to a predetermined limit without prior approval from the agencies.
How can banks help mitigate risk in transactions involving foreign currencies?
There is an embedded currency risk in any transaction involving a foreign entity. Although paying or receiving U.S. dollars for your international transactions may seem like a prudent way to mitigate your foreign exchange risk, the opposite is true. In fact, when you conduct international trade in U.S. dollars rather than in the functional currency, you are exposed to the foreign exchange market.
If you have an international payable and the U.S. dollar weakens, your vendor could ask for additional funds to cover the shortage. Conversely, if you’re exporting and your customer’s currency weakens against the dollar, then it’s harder for your customer to pay you and it may default. Accordingly, the most conservative manner in which to conduct your international transactions is by dealing in the foreign currency to better manage the risk.
Say you’re exporting from the U.S. to Mexico, which has seen its currency depreciate 23 percent during the past year. As an exporter, the strengthening U.S. dollar against the peso makes you less competitive and potentially exposes you to nonpayment.
This risk can be offset and hedged using forward transactions with your bank’s foreign exchange team, locking in today’s exchange rate for future delivery. By doing so, you remove market volatility and exchange uncertainty, while minimizing your costs and maintaining your profit margins.
Ianni Palandjoglou is senior vice president, international, with Cadence Bank. Reach him at (713) 871-3908 or firstname.lastname@example.org.
Insights Banking & Finance is brought to you by Cadence Bank
There are more than 900 million active users on Facebook, the equivalent of nearly three times the population of the U.S.
“The challenge with social media is that employees are constantly posting comments regarding their work and personal lives on their own time as well as during work hours,” says Laura Fleming, Shareholder with Stradling Yocca Carlson & Rauth. The line between public and private life often is blurred, which complicates the situation for employers.
Smart Business spoke with Fleming about the lawful use of social media in hiring, firing and other workplace situations.
Can employees be fired for using social media?
Most employees are ‘at-will,’ meaning they can be fired for any reason as long as it’s not discriminatory. As of now, there’s no law that explicitly prohibits firing an employee for behavior on social media sites.
However, some social media activity is legally protected. For example, civil rights laws protect employees based on their race, religion, disability, gender, sexual orientation, etc., so it could be unlawful to fire an employee for writing about religion on Facebook.
In addition, the National Labor Relations Board (NLRB) recently has targeted employers for firing employees who criticize working conditions on Facebook. The National Labor Relations Act (NLRA) was established to protect employees’ rights to engage in group activities to improve working conditions, especially through unionization. The NLRB has taken the position that employees complaining about working conditions on social media could be protected as if they were engaging in union activities. While a single employee on Facebook grumbling about an employer is not protected, if other co-workers join in — two or more, whether virtual or in real life — they may be protected under the NLRA.
Should employers conduct Internet searches to discover more about job applicants?
It’s prudent for employers to know who they are hiring and a social media background check can give you useful information. The problem is that embedded in this information are details irrelevant to the position and potentially protected. It can be a challenge to ensure that protected information doesn’t bleed into the hiring decision.
If you conduct an Internet search on an applicant be careful not to base any of your hiring decisions on information protected by civil rights law. In fact, some background check agencies will perform social media checks for you and screen out protected information so you don’t see it. You want to avoid creating any record that would show protected information was used in a hiring decision. In general, employers should avoid discussing any protected-category information during an interview and definitely avoid emailing such information to colleagues. Otherwise the applicant, having been denied the position, could claim that he or she was unlawfully passed over based on protected-category information discovered on a Facebook page or other social media site.
Can employers ask applicants and employees for social media passwords?
Right now, there are no laws specifically prohibiting employers from requesting personal social media passwords. However, Facebook has come out strongly against this practice, claiming it is a violation of its statement of rights and responsibilities to share or solicit a Facebook password. Also, in several jurisdictions, including Illinois, Maryland and California, there are movements to get laws passed to protect social media privacy. Regardless, any company that requests personal social media passwords risks lowering employee morale.
In addition, if an employer is trying to hack into an employee’s personal account without that person’s knowledge or coerce an employee to give up his or her password that could be a violation of the employee’s privacy rights or the Stored Communications Act.
Can an employer claim ownership of an employee’s Twitter followers?
In one high-profile case, an employee amassed some 17,000 Twitter followers and then tried to take the account with him upon his departure. There is an ongoing lawsuit to determine the rightful owner of the account, as well as the monetary value of the followers.
Because it takes time for the law to catch up to technology, there is not much legal guidance on how to determine ownership of social media accounts that are used for blended — work and personal — purposes. Thus, employers that engage in social media marketing should be careful to document their ownership of social media accounts. The employer should maintain and pay for the accounts, and prohibit personal use of the accounts.
How can employers protect themselves from social media-related claims?
All employers should have a social media policy, which safeguards several important interests. First, the policy should limit personal social media activities during work time or on work equipment. A recent survey found 64 percent of employees admitted visiting websites unrelated to work during work hours. Although it may be unrealistic to attempt to eliminate this activity entirely, to maintain a productive workforce employees must keep personal social media activity to a minimum. Second, the policy should prohibit employees from disclosing confidential and proprietary information online. The policy also should prohibit the use of social media to engage in any type of harassment of other employees.
Also, if a company is engaging in social media marketing, its marketing guidelines should comply with Federal Trade Commission regulations. For example, if employees are posting reviews of their employer’s products, they must disclose their relationship, among other requirements. Highly regulated industries, such as financial services and pharmaceutical/medical device, have additional restrictions on online advertising.
Laura Fleming is a Shareholder in Stradling Yocca Carlson & Rauth’s Labor and Employment Practice Group. Reach her at (949) 725-4231 or email@example.com.
Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth
Companies often spend a good deal of time and money building a portfolio of trademark registrations in countries in which they do business. However, when a company goes through a reorganization or its assets are purchased, foreign registrations are sometimes given short shrift.
“The new owner often puts off recording the transfer of the foreign registration until it is time to renew the registration,” says Colleen Flynn Goss, counsel at Fay Sharpe LLP. “This typically doesn’t end well.”
Companies risk losing their registrations and it is not always a given that a new registration will be granted.
Smart Business spoke with Goss about what companies need to keep in mind regarding trademarks in foreign countries during the transfer of assets.
How do companies run into trouble maintaining title to foreign trademark registrations during an asset transfer?
While a company’s trademarks and associated registrations are generally properly listed in sale or transfer documents, transactional counsel often doesn’t understand the regulatory requirements of different jurisdictions when it comes to formalizing the transfer of title. A common error we come across is that the transfer language simply says that the company transfers 'all worldwide right, title, and interest in the ABC trademark and to any and all registrations and applications throughout the world.' This simply will not suffice in many countries.
Although title to trademarks is transferred in a bill of sale or assignment document executed at closing, you still need to record the title change in the required format with the proper trademark registries around the world. This can be expensive when there are registrations in multiple countries.
Why wouldn’t one record the assignments as soon as the transaction is completed?
Because recording assignments can be quite expensive, companies are reluctant to incur the expense of recordation, particularly with a large portfolio registered in several countries. Often, the new owner will decide that it will wait until the particular registrations are due for renewal. The thinking is that if the mark is no longer of value in the particular country of interest, the registration will just be allowed to lapse and the cost of recording has been saved. That’s fine – if the mark is no longer valuable and the registration will be allowed to lapse. The problem with this approach is that in most countries a trademark registration is valid for 10 years. What happens if a mark remains important and a problem arises with the transfer documents several years after the transaction is completed?
Why shouldn’t a company wait to register the transfer of a trademark?
Many countries require the use of specific forms that have to be filled out in a very particular way in order to register a transfer. For example, the process might necessitate that you have documents signed both by the new and original owner, or you may need the original documents and not certified copies or legalizations by particular consulates. Or, you may have the situation described above where all of the particulars of the foreign registrations are not listed.
Consider this scenario - Widget Company acquires the assets of TT Inc., including the trademark registrations for house brand TOPSY TURVY in 15 countries in Europe, Asia and South America. The registration for TOPSY TURVY in Russia is due for renewal eight years later and, lo and behold, the yellowing photocopies copies of the trademark assignment that counsel forwards to its associate in Russia for recordation are refused because they do not conform to the requirements for transfer in Russia. This is easy enough to fix with a confirmatory assignment document. However, if there are no longer any officers from TT Inc. available, it can be difficult to finalize a simple confirmatory assignment.
While you may have thought that you were saving money by waiting to file the transfer documents at the time of closing, you may have just walked into greater expense. Additional documents with certifications and legalizations to correct title may be available but have added to the cost. More important, it may not be possible to record the documents at all. Now the company is faced with filing a new application. This is more expensive and is certainly more time consuming than recording title. And here is the unfortunate part – just because you had a registration does not mean that you will be able to obtain a new registration for the same mark. The end result may be that Widget loses its house mark in an important market.
Why not simply file the new application?
Just because you had a registration does not necessarily mean that you will be able to obtain a new registration for the same mark. When one files a trademark application, there is generally a mechanism that allows a third party to object to registration of a particular mark.
There may be entities with similar trademarks that did not contest your application when it was originally filed 20 years ago but might now be in a more financially and market secure position to do so. This could prevent the registration of your mark, even if it has been established in that country for many years.
In addition, the market growth of some countries, such as China, has been significant. Because such countries now have more trademarks on their registry with which to compare new filings, there is a greater chance of conflict with an existing trademark. If your registration is refused you may be prohibited from doing business in that country under your mark, face infringement claims by third parties, or encounter customs issues.
How can companies ensure they have done what is necessary to maintain their trademark rights?
When you are acquiring or reorganizing a company, involve intellectual property counsel for specific guidance on trademark transfer. Make sure that the transfer language and schedules completely and accurately list all of the trademarks and associated registrations and that the conveyance clause includes a specific reference to the transfer of the goodwill associated with the marks. Conduct due diligence to ensure that title to these registrations in various jurisdictions is correctly in the name of the seller. Take the time to contact foreign trademark counsel and obtain and execute the country specific transfer documents. You may still be able to avoid some of the immediate costs of recording transfer documents by postponing recordation of the executed transfer documents until the renewal is due. This way, you have short-circuited the problems that could occur eight years down the road when you need those signatures or papers to complete the transfer and the requisite documents or people are no longer available.
However, the best practice is to bite the bullet and file at the time that the acquisition or reorganization occurs because there is less chance of encountering problems. For companies operating in the international marketplace, trademark registration and protection of your trademark in other countries is just as important as protecting your trademark in the U.S.
Colleen Flynn Goss is Counsel at Fay Sharpe LLP. Reach her at (216) 363-9132 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Fay Sharpe LLP.
The number of small businesses is increasing, and as owners focus on growing their companies, many are overlooking available tax incentives.
“Capital is so important to a growing company to facilitate growth and ensure stability,” says Jeremiah E. Thomas, an associate with Kegler, Brown, Hill & Ritter. “However, small business owners often get focused on running their business and miss out on opportunities to qualify for programs that can ease tax burdens and reduce capital restrictions.”
He says it’s important to know what’s available so that you can maximize your access to money for the benefit of your business.
Smart Business spoke with Thomas about how to uncover government programs that can help ease your company’s tax burden.
Are funds readily available to small businesses?
There are many programs and incentives available, but some can be hard to obtain. While businesses may have the impression that there are easily accessible grants available, many of them are designed for very specific purposes and the average startup likely wouldn’t qualify. However, that doesn’t mean there aren’t other opportunities to lower costs through tax credits and intelligent tax planning on the federal, state and local levels.
What types of tax incentives are available for a new business?
The most easily available tax incentives may be federal tax incentives because, in many instances, they are automatic. Knowing which federal incentives you qualify for and accounting for them on your annual tax return allows you to access ‘easy’ money.
For example, there is relief on capital gains taxes if you own qualified small business stock. There is also the ability to immediately deduct from taxable income certain expenses for starting a business, and small businesses are able to use tax credits for providing health care, energy efficiency improvements, and research and development expenditures.
In contrast, a lot of state and municipal tax programs require some negotiation, for instance, with county representatives to get an abatement for real estate taxes. These credits are valuable, but they take extra steps and costs to receive the benefits.
How are some tax incentives ‘automatic’?
Receiving the benefits of a tax credit can be as simple as knowing the credit exists, factually qualifying for it and checking the appropriate box on your return to get the benefit — there’s no application process.
Also, some of the existing tax software can help automatically identify tax benefits by asking questions to determine if you qualify. However, squeezing every benefit out of a particular tax incentive is more complicated than reading the form. Consulting with attorneys and accountants is a great way to identify the applicable credits, especially with more complex ones.
Are there other incentives that are more valuable or more easily accessed?
Well, there are certainly other programs. There are Small Business Administration loans, with which businesses can take advantage of lower rates to borrow capital to grow, but those programs are pretty complex and take time to apply and qualify for. At the state level, another more complex option is the Technology Investment Tax Credit Program, which provides investors with a tax credit for the money they invest in technology companies. Small companies advertise to investors the ability to get 25 percent of their investment back from the state in the form of a credit. But in order for it to benefit the company, they have to find an investor and understand the credit. Then the investor has to apply and the company has to qualify to receive the benefit, so there are many moving parts.
The state also provides some loan programs and tax credits based on job creation. The state may lay out a number of milestones during negotiation that a company must reach for it to receive a tax credit or qualify for low rate loans.
Are there options for more mature businesses?
On the federal level, large and small companies can both benefit from good structural planning. However, there are certain federal tax incentives that are only available to small businesses, which can be outgrown.
At the state level, broadly speaking, it’s easier for a more mature business to take advantage of the tax programs that exist, as Ohio is more interested in backing companies that can create more jobs, while startup companies might only be looking to hire one or two employees and may need to rely on a narrower band of incentives, such as those focused on technology.
What is the key to finding incentives that work for your business?
The real key is thinking holistically. A business is subject to different taxes. The property you own is subject to real estate tax, but programs such as the Enterprise Zone Abatement Program allow municipalities to establish local development areas where qualified companies can locate and take advantage of real estate tax abatements. There are also a number of ways companies can minimize their sales tax responsibilities, such as Ohio’s research and development sales tax exemption.
It is important to think creatively about the sources of tax and have good advisers on the accounting and legal side to keep you apprised of changes in the law. You can also talk with your local development entities to uncover state and local incentives; these programs are great marketing tools for governments to show how successful small businesses are performing in their area.
Jeremiah E. Thomas is an associate with Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5447 or email@example.com.
Insights Legal Affairs is brought to you by Kegler, Brown, Hill & Ritter Co., LPA
A projected 175,000 service members will be exiting the military in the next year. When they return to civilian life, these young veterans of the Iraq and Afghanistan wars will face an unemployment rate of 23 percent, contributing greatly to the Department of Defense’s annual unemployment compensation payments of more than $900 million. However, at the same time, there are 1.7 million high-wage, high-demand jobs open in the U.S. today that match the skills of service members, representing more than $136 billion in gross wages.
“Many service members do not fully grasp the value of their training and experience in the work force and end up underemployed or unemployed as they struggle to find work,” says Laurie Bradley, president of ASG Renaissance.
Smart Business spoke with Bradley about how hiring veterans can benefit your business.
Why are veterans seemingly being overlooked in the marketplace?
Part of the reason is because it’s very difficult to translate military experience into a civilian resume. For example, an infantryman with 20 years of experience in the Army might state on his resume that he ‘operated weapons and tanks and dug ditches.’ He needs to convey these skills in terminology recognized in the civilian world of work, such as ‘supervised, trained and evaluated 35 personnel, and supported more than 2,500 troops in four countries. Core competencies include personnel management, logistics and operations.’ This will help the reviewer match these skills to possible employment opportunities that may include logistics or personnel management.
Once you overcome the language barrier, you can recognize some of the softer skills people have learned in the military, for example, being entrepreneurial, which is crucial today. Service members understand how to be part of a team and have respect for a team, which can translate to any job. They also have cross-cultural work experience and have worked in very diverse environments, traits that many employers seek. The stereotype of service members just following orders and not thinking is outdated. It’s a new military today that operates in ever-changing environments.
What are some industries that would benefit from veterans and their skills?
The skills of service members translate well into any industry. You want people who are not only able to learn a product or a service but also who have good communication skills and are adept at skills transfer. Our military really demands that people think on their feet and react very quickly, making the right choices in a very short timeframe. In the fast-paced business environment we all compete in today, that is a great attribute to have.
What are the benefits of hiring veterans from a marketing perspective?
The message of being a veteran-friendly environment is significant. Having a veteran-friendly message in your hiring materials helps improve a company’s image, because you don’t have to look far to find someone who is or who knows a soldier. It really supports a message of inclusion and speaks to the fact that a company has been thoughtful in its hiring process as it looks to source talent across a broad spectrum of potential candidates.
From a tax perspective, new rules provide for an expanded tax credit for employers that hire eligible unemployed veterans. The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 per veteran for tax-exempt organizations.
To qualify, the employer must file a request with the local state agency for the Work Opportunity Tax Credit. This applies for veterans hired on or after May 22, 2012, and before Jan. 1, 2013.
How can companies better integrate veterans into their businesses?
Start with a great outreach program. Be clear in your hiring message and have the ability to translate military resumes to determine if you have a fit. Companies should consider installing a customized onboarding program that includes a partner or coach to help the new hire navigate the civilian employment world.
The program should be sensitive to the varying needs of veterans, including those who have only been out of the service for a few months, or ones who have been back in the market for a year or more. In general, it’s important to make sure your onboarding process includes cultural acclimatization to the civilian work force. Civilian corporate culture is not as black and white as the military and language and communication styles differ. Former military personnel can be formal and direct, whereas civilian communication styles can be much more nuanced. The U.S. military has a top-down system for making decisions, while many civilian companies have a more bureaucratic process.
Where can companies find veterans?
There are job boards and employment services that cater to military personnel in transition, such as Hire A Hero, careeronestop.org, or contact your State’s Director for Veterans’ Employment and Training (DVET).
Are there reasons a company might not hire a veteran?
Concerns range from post-traumatic stress syndrome to skills transfer and the gap between military and civilian work styles. Some employers are uncertain how to provide work site accommodations for those with physical injuries, but there are a host of resources to navigate these concerns.
Just as with civilians, you have to evaluate each person on a case-by-case basis. Employers need to spend the time in the hiring process to determine if there is a fit.
If you know that there is a pool of talent that has the skills to do the job, why wouldn’t you consider putting that to work? Those who served our country are ready to transition those skills and dedication to service into the civilian world of work. Ultimately this translates into a win for both the employer and the veteran.
Laurie Bradley is president of ASG Renaissance. Reach her at (248) 477-5321 or firstname.lastname@example.org.
Insights Staffing is brought to you by ASG Renaissance