As a business owner, you are focused on customers, products, marketing and day-to-day operations. You can’t afford to be worried about your financial support. That’s why it’s important to have a trusted partner that thinks ahead, has the necessary capabilities and shares in your business philosophies.
“When you pick a partner that understands what you do, they aren’t asking you a million questions daily,” says Tim Burke, CEO of FirstMerit Bank’s Central Region. “They’re supporting you, offering new ideas and helping you grow and develop your business.
“When you pick the wrong partner, there’s no trust. They may then begin to question your business decisions. This slows down an organization, which is not what the right partner does. You don’t want a partner that dresses it up in the beginning but then doesn’t deliver once the commitment is made — the last thing either party wants is buyer’s remorse.”
Smart Business spoke with Burke about how to pick the right banking partner for your organization.
What should a company look for in a banking partner?
Before meeting with a bank, take the time to figure out what you are looking for from your banker. Once you outline your criteria, make sure you stick with them when you make the decision to move banks.
A good rate doesn’t always make a good financial partner. Many people say a strong relationship is most important to them, but at the end of the day they can’t pass up a promotional rate or quick return on the financial side. Then, if that relationship doesn’t turn out the way they thought it would, when they review why the relationship failed, they find they strayed from what they thought was most important.
Stick to it. Tell the banks you are meeting with what’s most important so they know what you are looking for and can tailor their solutions to meet your needs. Here are some starting points:
- Look for multiple people within a bank that you can know, call and trust. It’s not enough to just know your banker. Have more than one contact who understands your company and can be your advocate in case your main contact leaves or gets promoted.
- Seek financial strength. When you need cash, your bank needs to be able to step up.
- Look for breadth of solutions. Banking is more than loans and deposits.
- Make sure your bank has the technology to make it faster and easier to manage your finances.
- Find a bank that focuses on your type of business by industry and size.
- Remember, you often get what you pay for. A negotiation to pay nothing may get you an unsupportive partner that eventually loses money on the relationship.
How should a company handle its ‘interview’ with a potential banking partner?
Provide an agenda for the meeting. Take the time to outline your expectations and objectives.
Usually the bank has its own agenda, two or three things it is trying to accomplish, and it’s wise for a company to go through the same process. Here are some items to consider:
- Understand the credit approval process and who the true decision makers are. Do any of these decision makers truly know you and your business?
- Review the target markets they serve and are comfortable with.
- Understand all of the bank’s capabilities, whether it’s for credit, cash management, international, real estate financing, etc.
- Ask about their financial situation and request proof of success.
- Look at their customer service channel for your business and if it is recognized by other customers as strong. Most banks say they have strong customer service — make them prove it by asking them for references.
- Have them walk you through how and when they will reach out to your business and for what reasons — understand the touch plan.
- Know what possible customer and vendor introductions they can make to you that will help you grow market share and add customers to your company.
Why is a bank’s touch plan important?
Too many times, the banker assumes he or she knows how a company wants to be treated from a communications standpoint. The touch plan resolves this issue by setting expectations for communication between the bank and the company.
What are the keys to getting a banking partnership off to a good start?
- Full disclosure of financial information and future expectations.
- Tight communication with multiple contacts on both sides.
- Anticipation and sharing of any possible hiccups to understand how trouble could occur, but also what proactive solutions may solve the problem.
- Identifying expectations for communication that includes scheduled, regular contact.
- Introduction of your team and their team, face to face if possible.
- Help from an expert when changing banks.
Tim Burke is CEO of FirstMerit Bank’s Central Region, including Stark, Tuscarawas, Wayne, Holmes, Medina, Ashland, Richland and Crawford counties, as well as the Bank’s presence in western Pennsylvania. Reach him at firstname.lastname@example.org or at (330) 764-7276.
Many developers struggle to deal with the cost of debt for ambitious real estate projects. But partnering with public and private entities can help reduce the loan required from the bank, allowing the developer to leverage its equity more effectively.
“The projects that require public and private partnerships, a combination of private conventional bank debt supported by quasi-public sources, are typically deals that wouldn’t happen without those subsidies,” says Steven Zickefoose, a Senior Vice President and the Manager of Commercial Real Estate Banking for FirstMerit Bank. “It harkens back to the 1980s, when many urban projects were required to meet the ‘but for’ test for low-interest government loans, or the project wouldn’t happen.”
Smart Business spoke to Zickefoose about how large-scale development projects are made possible by public and private funding.
Why would companies want to involve public or private parties in real estate projects?
Because of the economic challenges facing some of these difficult projects, they just can’t work conventionally. The Flats East development project in Cleveland is a good example, because a public subsidy was needed to deal with the physical challenges of that site. A site may need to be heavily engineered to support development. Perhaps the roadways need to be expanded to improve physical access to the site, or utility infrastructure upgrades (water, sewer, electric) are needed.
When you deal with all those elements, you add costs you wouldn’t find in a simple greenfield development in a suburban location. The necessary upgrades increase the cost of the project, and if you tried to finance in a conventional fashion at, say, 75 percent of the total budget cost, it wouldn’t work. The cost of the debt would make the project unfeasible.
What types of projects are usually financed in this manner?
It’s not always a new site; it could be a redevelopment site. If you’re renovating an 80- to 100-year-old commercial property, you typically have to deal with out-of-date core infrastructure and mechanical systems, and inability to support modern telecommunications. Those are added costs that you wouldn’t have if you were building new. But there is a lot of energy in urban areas to revive our commercial core rather than demolish and build anew.
The cost of a 100,000-square-foot new development is not comparable to an urban redevelopment, but rent is still driving the market. You have to find a way to make the bottom line work because the rents are fixed in the marketplace. So you then have to deal with the cost of debt. That is the overriding challenge.
How do these difficult projects happen?
There is a need for multiple layers of financing. The Flats East project had 37 funding sources, led by two major banks. Another project in the University Circle area of Cleveland had 11 sources of financing. Developing these projects is not for the faint of heart. It requires a lot of cooperation with the many financing sources. The bank, as the lead lender, has to balance being in control without ignoring the issues, concerns, rights and privileges of the other subordinate financing sources.
What are typical sources of financing that can be secured for real estate projects?
Traditional public infrastructure support includes typical municipal bonds and infrastructure or general obligation bonds that go toward public improvements that support the site, like roadway access and public parking garages. Also, there are truly subordinate sources that generate equity for commercial redevelopment projects. There are two particularly prominent funding sources of this type. First, historic tax credits, offered by the U.S. government and available through the IRS, provide tax credit for the eligible amount of investment directed toward upgrading eligible properties. Second, the New Market Tax Credit, another federally designated program, was established to support job creation.
These tax credits are typically earned by the developers and syndicated to an investor, usually institutions such as banks and corporations. Developers could use the credits themselves, but usually the developer is not generating enough income to take advantage of them. So they are sold to corporations, which contribute much-needed equity to projects.
In addition to federally designated tax credits, the state of Ohio now offers historic and New Market tax credits as well. Another source of funding is local foundations, such as the Cleveland Foundation, the Greater Cleveland Partnership and the Columbus Foundation, that support historic or urban redevelopments and job creation.
Typically the final piece in these communities is the urban governments themselves — the cities of Akron, Cleveland and Columbus all offer either redevelopment or economic development grants and low-interest financing sources.
Why are these partnerships becoming more prevalent?
Their increased prevalence is a reflection of the economic times. The last time that significant public/private partnerships were required was the late ’80s and early ’90s, when a lot of our urban cores were redeveloped. Projects like the Short North area in Columbus and Tower City in Cleveland received significant tax credits for historic renovation.
Help was required because economic times were such that market rents wouldn’t support private capital doing it alone, and there was a scarcity of capital. We’re going through that again, as many large-scale projects were stopped when the financial markets crashed in 2008. Slowly, developers have dusted themselves off and government and foundation sources have stepped up in creative ways to support development. In turn, the banking industry has been nudged back to the table.
When times are tough and capital is scarce, everyone needs to come to the table to get these deals done, or else nothing happens in the marketplace.
Steven Zickefoose is a Senior Vice President and the Manager of Commercial Real Estate Banking for FirstMerit Bank. Reach him at (330) 384-7179 or email@example.com.
If financial issues are keeping you up at night, the solution could be as simple as sitting down with your banker.
“I want to sleep well at night, and I want you to sleep well at night,” says R. Eric Dellapina, the president of the Stark County/Western Pennsylvania Region of FirstMerit Bank. “The only way to do that is by talking. It’s when people don’t talk to one another that they start to guess. When a client isn’t communicating with me, I assume the worst. Likewise, if the bank isn’t talking to its clients, those clients will often jump to the conclusion that things aren’t going well. The bank needs to communicate that it understands whatever problem the client is facing and is willing to help.”
Smart Business spoke with Dellapina about the business benefits of improving your relationship with your banker.
What are the five keys to having a better relationship with your banker?
- Clear and direct communication is key. In order to have a good relationship, businesses should realize how important it is to have a banker who communicates clearly. Make sure you and your banker speak the same language. Don’t guess what your banker is saying. Make sure your relationship is strong enough that you can ask for clarification, or talk things over to make sure you are on the same page.
- Not all relationships are created equal. You need to seek out a banker you can count on. Often, bankers are seen as fair-weather lenders; they’re there when times are easy, but as soon as times get tough, they’re not available to help. If you have a good relationship with your banker and have established trust, that is valuable. Your banker should stand up for you, be proactive, help your business be successful and be your advocate within the bank.
- A banker must be knowledgeable about your business. This is fundamentally critical to all relationships. Not only does your banker need to understand your business, he or she needs to understand your competition and how your operations work. This can be accomplished by inviting your banker to tour your facility or by scheduling regular meetings. The more a banker knows about your company, specifically, the better that banker can help you, whether it’s through getting additional capital or restructuring debt.
- Meet senior management. If you are my client, I want you to meet as many of my team members as possible. I want you to meet my banking assistant, my portfolio banker, my credit officer and my regional CEO. If I introduce you to everybody, you become more comfortable with the business/bank relationship as a whole. Additionally, if I’m unavailable, there are other people in the organization you know and trust that can support you.
- A banker should be a trusted adviser. Businesses should have a good advisory team, consisting of a lawyer, banker and accountant. Those three professionals should work together in concert with you to make strategic decisions and plans, as well as develop a company strategy that will get your business to the next level. Giving your banker that trusted adviser status helps build the relationship and drive business success. If you don’t include your banker as part of your advisory team, you’re missing a vital part of the equation.
How can you develop a better relationship with your banker?
It all comes down to open, honest dialogue. People tend to play their cards close to the vest. They don’t open up with another individual until they know that person. But a banker’s job is to say: ‘Here’s how I see your problem. Tell me how you see it differently and tell me how we can work together to find a solution that makes everyone happy.’
It takes work and effort to develop that comfort level and trust where a client feels comfortable calling and asking for advice.
What is the best way for a banker to gain knowledge about the business?
Consider inviting the banker for an operational tour of your company. Let the banker meet the management team. The banker should be able to sit down with that team and discuss financial and operational issues, such as why the company needs new computer hardware. That meeting and discussion really helps a banker comprehend what the owner is trying to accomplish. Sometimes, the owner is determined to head down a particular path, but once the banker understands the situation, he or she can provide additional solutions that the owner never considered.
What particular traits should businesses look for in a banker?
It’s important to look for a banker you feel comfortable with. Trust is such an important factor in building any good relationship. You also need someone that can communicate effectively. In order to be successful, both the client and the banker need to understand each other’s goals and strategies. You also need someone who’s going to listen to you. I think we all know people who already start formulating a solution before they hear the whole problem. Make sure you and your banker completely understand each other’s needs and ideas.
R. Eric Dellapina is the president of the Stark County/Western Pennsylvania Region of FirstMerit Bank. Reach him at (330) 498-1532 or firstname.lastname@example.org. NICHOLAS BROWNING is the president and CEO of FirstMerit Bank’s Akron region. Reach him at email@example.com or (330) 384-7807.
Business owners need to be aware of the tax implications of recent federal legislation, including President Obama’s extension of former President Bush’s tax cuts and changes to the estate tax exemption.
“There are a lot of potential advantages on the plate, but there are also a lot of unknowns,” says Mona Sarkar, J.D. MTax, a Vice President, Client Advisor and Wealth Team Manager for FirstMerit Bank. “Some things have changed and some have stayed the same.”
Smart Business spoke with Sarkar about how to prepare for the implications.
What has changed and what has stayed the same?
On one hand, the new legislation extended tax cuts with regard to dividends, capital gains and rates on ordinary income, for another two years — through the end of 2012. On the other, the estate tax situation was modified.
Over the past decade, the estate tax had an increasing exemption amount, which peaked in 2009 at $3.5 million, with a maximum tax rate of 45 percent. In 2010, there was no federal estate tax. Legislators then passed a $5 million exemption and a maximum estate tax rate of 35 percent for 2011 and 2012. In addition, the lifetime gift-giving exemption was capped at $1 million, while the estate tax exemption continued to increase.
Now, the new estate tax exemption and the gift tax exemption are the same. Someone can pass away with an estate of $5 million and pass federal estate tax-free to beneficiaries, or they could literally give away $5 million of assets during their lifetime and pay no gift tax. It’s an either/or for the next two years.
The real question now is will the higher estate tax exemption be made permanent or will it revert to lower previous levels? As a result, you have a two-year window of advantages capped with uncertainty.
What should businesses expect over the next two years?
There is a drumbeat of concern about taxes wiping out a lifetime’s worth of building a business. The people pushing to make the estate tax exemption permanent say it will save the American small business.
Small business owners are saying ‘If my spouse and I each have a $5 million exemption, that will ensure our business passes on to the next generation without having to be sold to pay taxes.’ I expect there will be an attempt to make it permanent prior to the national election in 2012.
What do business owners need to know about the changes in the estate tax exemption?
There are business owners with a succession plan in place, who have already given away $1 million of stock in their business, but were kept from giving any more because they would be paying out-of-pocket on gift taxes.
Now, they have the opportunity to re-examine their plan. They’re able to make larger gifts or pass the business down to the next generation, without extraneous tax penalties.
Most estate planners are educating their clients as to what’s currently possible in the given environment. Our job is to be sure the consumer is educated as to the possibilities, so they’re able to make an informed decision Not everything in life can be driven by taxes, but it’s important to be aware of the tax situation.
As we get closer to the end of 2012, push will come to shove. Depending on whether lawmakers are considering making the changes permanent or if they are facing pushback, people will either sit back or there will be a race to accomplish major gifts in the last quarter of 2012.
How should existing estate plans be handled?
People should look at the documents they have in place, just to make sure that if something were to happen between now and 2012, or if in fact the new exemptions became permanent, their estate plan still works the way it’s intended.
While the documents fit at the time they were created, the current estate tax situation could turn that plan into a mess if it isn’t managed carefully.
If you have a document that is more than five years old, we recommend talking to your attorney to find out if it still works. Many factors can impact an estate plan: premarital agreements in the case of second marriages or children from previous marriages, etc. So when there are major changes in exemption amounts, like we’ve seen this year, it’s critical to examine your plan to make sure it still works.
While you may not want to engage in any major gift-giving now, you still have to make sure that if something happened to you tomorrow, you would still get the right result.
It’s a two-sided coin — on one hand it could impact your plan if you do nothing, and on the other hand, are there advantages you should take because of the exemption?
What other tax implications should businesses consider?
The income tax part of it simply extended the tax cuts that were already in place in terms of dividends, capital gains and ordinary income rates overall. To the extent that those were allowed to expire, you would have higher income taxes paid on dividends and capital gains and higher overall income tax brackets for ordinary income.
In terms of real actual revenue dollars, the estate tax is not a big item in the federal budget. Income taxes, capital gains taxes, and taxes on dividends are a much bigger concrete number. While they are not as high in any given situation, there are more people paying them.
Also, for anyone inheriting from an estate or beneficiary of estate for someone who passed away in 2010, there are elections that can be made. Talk to your attorney about it.
Mona Sarkar, J.D. MTax, is a Vice President, Client Advisor and Wealth Team Manager for FirstMerit Bank. Reach her at 1-888-384-6388 or Mona.Sarkar@firstmerit.com.