One never goes for a business loan without some apprehension, but there’s no reason to fret about approaching a bank to borrow money. That’s why the bank is in business.
Smart Business spoke with Jim Schroeck, vice president of business banking at Fifth Third Bank, about the lending process.
How should a business prepare when going for a loan?
The first thing a new business should do in preparation for a business loan is develop a written business plan that clearly demonstrates that the owner understands the products the company is offering along with the markets it plans to serve. Included in the business plan should be a description of what the business intends to do, forecasts for revenue and expenses for the first three years, a market analysis that demonstrates that the market will support its product, and a brief bio of the owners showing that they have experience in their particular fields.
Businesses established for more than two years should be prepared to provide the bank with accountant-prepared financial statements or tax returns for the past two years, along with all the owners’ personal tax returns. In addition, you should have a clear idea of how the funds will be used, with supporting documentation, such as purchase invoices or purchase contracts, when acquiring equipment or real estate.
Do I start with my accountant or my bank?
Along with your attorney and banker, an accountant is a vital partner for any successful business. For a new business, your accountant will provide assistance with forecasts and valuable feedback of the viability of your business plan. These forecasts should be included in your business plan. For established businesses, the banker will want to review financial statements or tax returns prepared by an accountant, so it’s important to establish a relationship with an accountant who can provide guidance throughout the process.
Whom should I approach at the bank?
It is always best to start with a local lending officer who will likely have a good understanding of the market you’re doing business in and will be accessible throughout the process. A local lender can be a valuable resource throughout the loan process by having knowledge of the current trends in your market, along with key business contacts that can be useful to the future success of your company.
Is a written business plan required?
For businesses less than two years old, a written business plan is preferred to demonstrate that the prospective borrower has an understanding of his or her industry and the markets he or she is serving. For businesses more than two years old, a business plan is generally not required; however, you will want to provide a detailed plan for the use of the loan proceeds and demonstrate the ability to repay the loan based on the results of the past two years.
What other factors will the bank consider?
In addition to the company’s ability to repay the loan under the terms of the note, the bank will look at the personal credit of the owners, which provides a good barometer in determining how the business will repay its debt. Those business owners who have below-average personal credit scores are considered to be higher-risk business borrowers to the bank. Also, the bank will want to know what collateral you can provide to support the loan. Any assets, like equipment, property or anything with tangible value, can secure a loan since they can be sold to generate funds for repayment in the event of default.
Who sets the interest rates and terms on loans?
Things like interest rates and terms are set by the loan officer and are negotiable for most commercial loans. Interest rates are set based on a number of factors, including credit strength of the applicant, type of collateral offered, cash flow of the business and the overall relationship you maintain with the bank. The stronger each of these factors is, the lower the rate may be relative to other applicants.
Terms are set based on the purpose of the loan proceeds. Generally, lines of credit used for working capital are set for a year at a time and reviewed annually, while loans to finance equipment are set for five to seven years. Loans to acquire real estate are normally set for five to seven years, with a longer amortization of 15 to 20 years to match the useful life of the asset being acquired.
How long should I expect to wait to hear back with a decision?
Depending on the complexity of the loan request, you should expect to hear back from your loan officer within 48 hours of submitting a complete loan application. Decisions on loan requests less than $50,000 are generally made within 48 hours, while larger requests may take up to 10 business days for a formal decision.
JIM SCHROECK is vice president of business banking at Fifth Third Bank. Reach him at Jim.Schroeck@53.com.
Technology makes call centers tick. It is natural for a business owner on the North Coast to wonder whether his or her call center vendor has the right technological tools in its toolbox.
Michael White says that having the right tools for the job is an ever-evolving process. “We typically find, or create, four to five new tools every year to keep our call centers agile and able to respond to the challenges of today’s marketplace.”
White and his team are responsible for all of InfoCision’s internal IT infrastructure and call center technology.
Smart Business asked him what technology tools he employs to keep his call centers competitive.
What tools does a call center need to be successful?
These days the most successful call centers take advantage of every opportunity to keep their work force productive. Part of keeping a work force productive is being able to give them different types of work depending on the demand. A true inbound/outbound blending solution gives call centers the ability to present their workers with inbound calls when the volume of incoming callers is high and seam-lessly transition them to placing outbound calls or doing other work when the incoming call traffic is light.
One of the most significant aspects of blending is the ability to receive consolidated reporting to help manage the time spent in each activity and to be able to make informed staffing decisions. The most successful call centers can achieve 45 to 50 minutes of productive time out of every hour.
What other tools might call centers use?
The best way to ensure effective communication is one on one, but oftentimes, there is a need to provide information messaging or to allow customers the opportunity for self-service. E-mail, fax and Interactive Voice Response (IVR) technologies all offer effective means of communicating with your customers. IVR technology is a perfect cost-effective solution for giving customers an informational message when they contact your call centers by phone. You can optionally invite them to speak to a live person if their needs are not met in the IVR message. IVR applications can also be much more sophisticated — to the point where they take an entire order and even offer context sensitive promotional offers depending on what products have been selected.
Can you give an example of where an IVR application has been successfully blended with a live operator solution?
Several of our TV ministry clients offer free products during their broadcasts, which can generate thousands of calls in a matter of minutes. To accommodate the influx of calls, we will often employ an IVR application to handle the free product offer. We present the caller with an initial menu of choices. For example: Press 1 for the free product offer that you just heard about; Press 2 for customer service; Press 3 for prayer requests.
Those who are interested in the free product are directed through the IVR application and asked a series of questions, using their touch-tone phone for the response. The first prompt is typically, ‘Please enter your home telephone number.’ With the home telephone number, we are able to reach out to a national database and look for the address that is associated with that phone number. If there is a match, we use text-to-speech technology to speak the address we’ve found, and we ask the caller to confirm whether or not that is the correct address.
The next prompt asks callers to speak and spell their first and last name, which we will either record or use speech recognition to input into a database, along with the rest of the caller’s order. Any time during this process we give the caller the ability to opt out and speak to a live operator. Also, the initial menu options would allow the caller to be sent directly to a person.
We’ve found the use of IVR to be a cost-effective solution for our clients and can help our call centers manage the high call volume situations that may not require one-on-one interaction.
Which tools have helped you to better manage your call centers?
Work force management tools can help to develop staffing models based on the historical trends of incoming calls. These tools work in conjunction with an automated call distributor (ACD) to look at the number of employees who need to be on a given shift, based on the number of calls that are expected that day or a specific hour of the day.
Scripting tools can significantly reduce training time and provide a consistent presentation that the operator can follow, as well as offer answers to FAQs (frequently asked questions) and context-sensitive product information.
Operator performance and productivity reporting tools are essential to successfully manage any call center effectively. Call center managers must constantly manage the need to keep their work force busy, along with the return on investment and performance goals of their clients, to ensure there is a win-win situation for everyone involved.
MICHAEL WHITE is senior vice president of information technology infrastructure and call center technology at InfoCision Management Corp., Akron. Reach him at (330) 668-1400 or firstname.lastname@example.org. In business for 25 years, InfoCision Management Corporation is the second largest privately held teleservices company and a leading provider of customer care services, commercial sales and marketing for a variety of Fortune 500 companies and smaller businesses. InfoCision is also a leader of inbound and outbound marketing for nonprofit, religious and political organizations. InfoCision operates 31 call centers at 12 locations throughout Ohio, Pennsylvania and West Virginia. For more information, visit www.infocision.com.
Smart Business asked Audrey E. Mross, of the Dallas law firm of Munck Butrus, P.C., where the lines should be drawn.
What aspects of employee computer usage are most troubling to employers?
The most common worry is ‘cyberslackers’ whose workplace productivity has an inverse relationship to the amount of time they spend visiting Web sites and sending e-mails. Go to www.bored.com for an eye-opening list of ways to waste time on a computer, including virtual Bubble Wrap to pop. Less frequent but more serious offenses include transfer of trade secrets, violation of copyrights, trading in child porn and other illegal activities.
Can a firm prohibit all personal use of its computers?
In most cases, no. Selective enforcement of a ‘no nonbusiness use’ policy will set the company up for an unfair labor practice (ULP) charge under the National Labor Relations Act when the employer attempts to stop protected activity. For most companies, it’s not realistic to prohibit all personal use of e-mail.
What kinds of limits do make sense?
A good policy should expressly incorporate the company’s equal employment opportunity and harassment policies to make clear that images, voice and text, which are intimidating, offensive, profane or hostile based upon gender, race, color, national origin, religion, disability, age or any other protected status are off limits. The employer’s systems should not be used to conduct a personal business enterprise, to spam others, to threaten violence or to express views that could be seen as the view of the company.
The systems should be used in ways that are consistent with security measures, which may include prohibiting employees’ access to their personal ISPs (e.g., Yahoo, AOL) from employer-provided systems, where such access would thwart firewalls and similar protective measures. Excessive personal use that monopolizes bandwidth or affects employee productivity is another act that could result in corrective action, up to and including discharge from employment.
Can the company be held responsible for its employees’ bad acts?
Yes. The doctrine of respondeat superior (‘let the master answer’) is frequently used to hold employers responsible for the mis-deeds of employees while in the course and scope of their employment. Negligence theories are used in cases where the misconduct took place outside of the employees’ normal duties.
For example, where an employer had knowledge that a worker was receiving and sending nude and seminude images of his 10-year-old stepdaughter on his work-place computer in order to gain access to child porn sites, the court found negligence and stated that the company had a duty to further investigate and take prompt and effective action to stop the employee by terminating his employment, reporting him to law enforcement or both (Doe v. XYC Corp.). The court remanded on the issue of whether the child could prove harm from the transmitted photos, but the employer withdrew its petition and the parties settled.
Is there any privacy protection for employees using a company system?
This is an area where unrealistic expectations collide. Employers often think there is no privacy, since the equipment used is theirs. Employees often think that there is privacy, especially where they have a secret password to access the system.
A few years ago, the Texas Supreme Court found an employee did have a reasonable expectation of privacy where the employer provided lockers for storing personal items but allowed the employees to bring their own locks (and not provide the combination or a spare key to the employer). The analogy to company-provided computers and employee-provided passwords is not much of a stretch. Employers must advise employees, in writing, that there is no reasonable expectation of privacy in use of the employer’s systems and employers should have written consent. This is normally accomplished by having an electronic communications policy in the employee handbook and securing a signed acknowledgment from each employee. As additional proof of consent (which is an absolute defense to a claim of invasion of privacy), some employers add a ‘no privacy’ reminder to the log-on screen on computers so the consent refreshes on a daily basis. Employers should also ask and keep records of employee passwords to under-cut privacy arguments and for practical reasons, such as accessing needed information when the employee is absent or has quit.
AUDREY E. MROSS is a shareholder at Munck Butrus, P.C. leading the labor and employment group. She combines prior experience as a human resources professional with the current practice of law to provide preventive measures and practical solutions to employers. She authors a monthly e-newsletter, Legal Briefs for HR, which is available on request at email@example.com.
Open communication with employees shouldn’t end after the training process. When running a company that relies on good client relations, a healthy dialog among workers, management and the executive level sets a precedent that fosters success and retention.
Smart Business asked Mike Langenfeld, executive vice president for call center operations at InfoCision Management Corporation in Akron, about the role of communication in the workplace.
Is there a particular educational or job background that tends to produce better communicators?
Retailing, customer service, food service industry — jobs that require contact with people are ideal for this. We are looking for anyone with a good attitude and a willingness to learn. We can teach them to be successful.
You can teach product knowledge. Can you teach phone personality?
You absolutely can. We teach sales skills and customer service skills, whatever is needed for the client. We teach the communicators how to listen and then how to respond as well as how to use their voice to connect with the other person. Objection handling, internalizing and assertiveness are all skills that can be taught.
How does the InfoCision training program work?
The initial new-hire training is four to five weeks long. We have one week of in-class training, where the trainee stays in the classroom environment the majority of the week. During week one, we use instructor-lead presentations and take into account adult learning principals in how the information is taught and coached. The in-class trainer then works on the floor with the new hire during the second week of training. Additional classroom time is provided in week two.
During their third and fourth weeks of training, a call center trainer works on the floor with the new hires, continuing to develop their presentation skills, and getting them comfortable with the work. The trainers will work one on one coaching the trainees. We do still provide additional in-class training modules in weeks three and four. After four weeks of training, we are able to have 90 percent of the trainees working within 80 percent of the average performance of the established center. That trainee is then considered a graduate and is moved on to a supervisor team.
If a trainee is not able to perform within 80 percent of the average, they are given an additional week on the training team, and additional help is provided.
Do some communicators work better with one product or service than another?
Yes. We evaluate our communicators on the various programs separately. We will then try and place our people on the programs with which they excel. While the various skills can be taught, the individuals will have natural skill sets that may make them stronger on a particular program.
Employee, worker, team member: does it matter what communicators are called?
Absolutely. In an industry that is known to have representatives and agents, InfoCision has ‘communicators.’ They communicate the message of our clients.
We work for our clients and everything we say on the phones is approved by the client. We are an extension of the client and it is our job to ‘communicate’ the same message regardless of which communicator is making or taking the call.
Do communicators respond more to cash incentives or other perks?
It depends on the location. Cash in hand is good, but workers don’t like taxes being taken out. They like to be personally rewarded for success and prefer instant rewards versus drawings for a chance to win.
It’s also effective to offer incentives, such as flexible hours, vacation time, fitness centers, an on-site doctor, tobacco cessation programs, weight-management programs, wellness competitions between buildings and discounted daycare.
How do you build a sense of team with your workers?
We make daily announcements, hold biweekly meetings, put out team newsletters and maintain team boards in the call centers. There are special recognitions and awards at monthly Employee of the Month ceremonies to top performing teams.
How often do you poll employees about job satisfaction?
Once a month we have a Quality Environment Assessment and will hold open forums with random selections of our communicators to make sure we get feedback. Our president and CEO will end every Employee of the Month ceremony with a Q&A session to encourage constant feedback from our communicators.
MIKE LANGENFELD is executive vice president for Call Center Operations at InfoCision Management Corporation, Akron. Reach him at (330) 668-1400 or firstname.lastname@example.org. In business for 25 years, InfoCision Management Corporation is the second largest privately held teleservices company and a leading provider of customer care services, commercial sales and marketing for a variety of Fortune 500 companies and smaller businesses. InfoCision is also a leader of inbound and outbound marketing for nonprofit, religious and political organizations. InfoCision operates 28 call centers at 12 locations throughout Ohio, Pennsylvania and West Virginia. For more information, visit www.infocision.com.
Most people get a physical checkup at least once a year. Such things as blood pressure and heart rate tell a lot about one’s health and the direction it is going. Why not do the same with your business’s financial health as well?
Sue Zazon, president and CEO of FirstMerit Bank in Columbus, says the idea of a fiscal rather than physical checkup is not a new one. However, it is typically overlooked in the rush-rush to meet other deadlines.
“Many business owners get regular medical or dental checkups,” Zazon says. “Yet, when it comes to evaluating their relationship with their bank and bankers on a regular basis, they fail to do so. Periodic evaluations are a must for business owners.”
Smart Business spoke to Zazon about why the right bank and banker are essential as a company attempts to achieve its business goals.
Why are periodic evaluations with a bank important?
Regular evaluations are important primarily because companies evolve constantly. The banking industry is dynamic: consolidation and personnel turnover are constant within it. Therefore, it is important to assess your ever-changing needs and how your bank is meeting those needs.
As the business evolves, you need to evaluate if the bank can and/or will grow with you. You should ask whether your banker possesses the required skill set and whether the bank has the credit appetite and expertise to grow with your company and industry.
Banks and bankers which are separate entities need to be evaluated individually. You might discover that the banker may be right for your needs, but the bank is not. Or vice versa. You might have to change one or the other or both in your own best interest.
How do you know which bank to choose?
You should look at where the bank directs its money, energy and resources. Does the bank have a focus on commercial banking? If it does, what size companies does it serve best? A bank that focuses on very large institutional clients may not be the right fit for small or middle-sized businesses. A bank that claims to specialize in all sizes will be forced to spread resources over a wide array of clientele.
It is absolutely a necessity to have a bank that has accessible senior management and other decision-makers who can help process requests quickly, act as your advocate and respond consistently to credit needs.
How do you evaluate a banker?
The level of commitment and interest in the company is extremely important. A banker should want to learn how your company makes money and what is changing in the industry.
Personal attention is also a determining factor. Is your banker ready to handle the next problem personally if needed? Does your banker understand your company’s financial goals and operations? Does it know your key personnel?
Does the banker have the ability to act as a sounding board for your company? The more experience a banker has, the more likely he or she is able to help with unique business situations. Your company may have never had operations in a foreign country, but the banker may have worked with other companies that have.
Does your banker have strong decision-making skills? Can he or she make a decision quickly or have access to the people who can?
All these factors determine the quality of your banker and should be evaluated regularly.
Who else should be consulted?
At least once a year, all the individuals that are part of your banking team should review your relationship, just like an annual exam with specialists called in. Treasury management is the most common specialty area in which banks provide expertise. A private banker, international banker and your retail branch manager may be others who are part of your team.
Is it more important to have the right banker or right bank?
Both are extremely important. You need both. A company that does not have the right banker is not going to get access to the right people or the right services. A banker can be extremely talented, but if the bank can’t deliver when opportunities arise, you need a different bank.
The right bank and banker deliver a relationship that is valued and provides benefits. Strong bank relationships provide the ability for a company to take advantage of opportunities, especially when there are periodic checkups to keep the relationship strong and healthy.
SUE ZAZON is president and CEO of FirstMerit Bank in Columbus. Reach her at email@example.com.
No business would knowingly implement a process to produce mediocre results. Instead, everyone focuses on best practices and continuous improvement of the processes in place. The challenge with continuous process improvement is to make the best better.
Smart Business asked Chris Wagner, vice president of marketing at InfoCision Management Corporation, about the process of continually improving a company’s marketing efforts and building a quality assurance (QA) program. “Good is not good enough today,” Wagner says. He advocates a regular review of all processes and raising the bar each time an existing metric is met.
Isn’t it a challenge to recognize that yesterday’s ‘best’ is today’s so-so process?
It sounds a bit harsh, but the demands of today’s business world call for out-performing the competition and yourself. The only way to run a quality, nimble operation is to keep raising the bar. Our company does this quarterly by providing an employee incentive for each component. Remember that quality matters in terms of results.
How does process improvement work?
Any process can be described as a triangle with these three sides: QA, training and execution.
The bottom line on the triangle is execution, or operations. This represents your output. That’s the place to start. As a company, we spent many years and millions of dollars building this side of our triangle. The goal is to directly correlate performance and execution. In a lot of companies, quality is measured after the fact. In a call center, you may have agents with very high QA scores and slightly lower performance, or vice versa. You have to balance their skills out with performance evaluation and coaching.
Second, you have to build a statistically legitimate QA program. This is for trend analysis. The closer your P-score is to zero, the more your costs increase. We try for plus/minus 5 percent reliability. Our QA program has three tiers: the production floor, where employees and managers work together; a QA manager who works with employees; and a corporate, internal QA group that monitors and calibrates quality daily.
Lastly, be sure you have a clear path out of the QA department to the training side of the triangle. You should continuously improve programs. Use tools like video, web-enabled training and local universities that offer employees degrees either for general or job-related improvement.
Where do you look first to increase productivity?
In order to improve, you need better employees, so look at performance and education in two areas: new-hires and production. We have a 30-day training period, after which people are expected to meet certain goals.
It is important to monitor the ability of your workforce to accomplish goals. Examine the potential of the top 30 percent. In our company, we average the top and second third of performance levels every quarter, and that measurement becomes our new standard of excellence.
Reset goals as soon as you are able to consistently hit the previous benchmark. For us, that is about quarterly. As soon as you can hit a benchmark consistently, it is time to raise it.
Should the call center take the lead in maximizing ROI for its customers or the business using the call center?
If a call center understands its customer’s key metrics, it can take the lead based on those benchmarks. The customer has to give its outsourcing partner incentives. However, be certain that the incentives boost productivity and sales and tie into true ROI, or they will become goals in and of themselves.
When does process improvement fall into the danger of tweaking for the sake of tweaking?
I don’t think it ever does. Any business constantly hires new people, adds new products, sets new goals and finds new customers. Even if you maximize the potential in one sector, you need to keep your eyes open for improvement in others
Any sports coach will tell you that the hardest time to improve is when the team is winning. But it is also the most important time. It is easy to get attention when you are the underdog, but there is a real danger of getting complacent when you are on top.
Is a big announcement required for changes? Does a process change lose some impact if it is simply inserted into the routine?
It is really larger than that. No real change can be seen as ‘just another idea from management.’ A change has to tie into the company culture to be effective. The best way is to link the change to compensation. Reward the top performers of the company for achievement. The key is buy-in from upper management. Change needs to be passed through the organization and not be seen as ‘the flavor of the month.’
CHRIS WAGNER is vice president of marketing at InfoCision Management Corp. Reach Wagner at (330) 668-1400. In business for 25 years, InfoCision Management Corporation is the second largest privately held teleservices company and a leading provider of customer care services, commercial sales and marketing for a variety of Fortune 500 companies and smaller businesses. InfoCision is also a leader of inbound and outbound marketing for nonprofit, religious and political organizations. InfoCision operates 28 call centers at 12 locations throughout Ohio, Pennsylvania and West Virginia. For more information, visit www.infocision.com.
That is prime advice.
“In many instances, however, litigation costs prevent you from implementing a litigation strategy that gives you the best chance to win.” Although litigation expenses can be significant, more than 90 percent of all civil cases settle prior to trial.
Smart Business talked to Butrus about controlling business litigation costs.
Are litigation costs really out of hand?
Yes and no. Litigation costs deprive many individuals and small entities access to our legal system. These persons and entities often lack the necessary resources to engage in litigation against large opponents.
Our judicial system is designed to accomplish a fair and impartial resolution of litigants’ claims. In theory, every litigant has the right to expect our judicial system to provide a forum conducive to this purpose. Judges, legislators and attorneys must periodically assess whether rising litigation costs are creating a barrier to a fair resolution of civil cases.
How tough is going through litigation?
While most litigants understand litigation costs, most do not consider the intangible costs. Litigation often requires employees to dedicate significant time and energy to gather documents, provide information and otherwise work with counsel on the case.
Never presume a lawsuit will end quickly. Most lawsuits have the potential to become a multi-year proposition, and if your business cannot afford a lengthy battle you should avoid litigation.
In many instances, there are good reasons to file a lawsuit even though the company may never recover its costs. For example, litigation often occurs when a large company wants to protect its intellectual property against infringers. Some manufacturers, as a matter of policy, want to litigate all claims to discourage parties with weak cases from filing suit.
Is there a rule-of-thumb on when to pursue legal action?
While there is no rule of thumb per se, a company should consider certain critical issues before engaging in litigation. Theoretically, a business’s goal is to maximize long-term value of shareholder equity. Of course, litigation expenses affect bottom-line profits. In the end, however, a successful lawsuit may lead to higher profits and increased shareholder wealth.
What do you tell clients who want to fight about ‘the principle of the thing?’
In most instances, it makes no sense to incur litigation costs simply to prove a point. Ultimately, however, the client decides whether to pursue a claim.
The attorney should explain to the client that our civil litigation system achieves justice primarily through awarding or denying monetary damages. In simple terms, our judicial system is not right venue to prove a point.
Can mediation help?
In some instances, mediation can help. During the course of a dispute, the opportunity for a successful mediation comes and goes.
When the parties have sufficient information to evaluate a case’s value, a case may be ripe for settlement at a pre-suit mediation. In addition, when both sides want to resolve the dispute a pre-suit mediation is a good idea.
A good time to seek post-suit mediation is just before the parties invest in large amounts of litigation costs. A critical development that changes the landscape of the case or resolves a critical disputed fact also presents an excellent opportunity to resolve a case through mediation. An imminent trial date is perhaps the best motivation for the parties to agree to mediation.
How do you choose a litigator?
Past success is an excellent predictor of future success.
In addition, ask questions to determine whether the firm has the in-house expertise needed for your case. In many cases, it is less expensive and more convenient to consult in-house experts than to hire outside consultants. Your case may involve intellectual property, tax, employment and other practice areas in addition to litigation. When the firm you hire has attorneys who practice in these areas, your costs typically go down.
Finally, be sure you have good rapport with the attorney you hire. Highly educated people such as engineers, scientists, accountants and attorneys tend to rely on technical skills and logic rather than intuition. However, litigation success goes beyond technical proficiency. It is critical that you trust your attorney and feel he or she is looking out for your best interest.
JOHN J. BUTRUS JR. is chairman of the Munck Butrus Litigation Section. He has more than 20 years of trial and litigation experience and currently handles intellectual property and complex commercial litigation matters for corporate clients and investors. Reach him at firstname.lastname@example.org or (972) 628-3600.
“Intellectual property is intangible property resulting from creativity,” says William Munck, chairman of the Dallas-based law firm of Munck Butrus PC. “IP describes a wide variety of property created by musicians, authors, artists and inventors.”
Smart Business talked with Munck to find out how a company can protect itself against challenges to its IP.
How do you protect intellectual property?
IP is protected generally by copyright, patent, trade dress, trademark and trade secret laws. These areas of law are designed to encourage the development of art, science and information by granting property rights to creative and inventive people. These rights allow artists, authors and inventors to protect themselves from unauthorized use and misuse of their creations.
What is the difference between patents, copyrights, trademarks, trade dress and trade secrets?
Patents are granted to inventors for new, useful and nonobvious inventions. A patent gives the inventor exclusive rights in the invention for a period of time, so that he can profit from the invention before the right to exploit it is available to the general public. Patents can be granted for plants, manufactured products, machines, processes and combinations of matter. A patent must be applied for from the federal government and will only be granted if the invention is unique.
Copyrights are exclusive rights granted to authors, artists, composers and publishers to create and publish their works. The work must be original and must exist in some tangible form; it cannot exist only in the artist's mind. A copyright arises automatically as soon as the work is made. However, registration affords owners of copyrighted materials additional benefits.
Trademarks allow businesses to protect the symbolic information that relates to their goods and services by preventing similar use by competitors. To receive trademark protection, a word or symbol must be distinctive and must be used in the marketplace so that it gains recognition with the public; this is called ‘secondary meaning.’ A trademark need not be registered, but if it is registered, the owner of the mark is afforded particular federal rights.
Trade dress is similar to trademarks and can be used to identify and promote the product or service. For example, the shape, color and design of a product or its packaging can be trade dress. Likewise, the decor and color scheme of a restaurant or store also can be the subject of trade dress protection.
Trade secrets protect competitively valuable information such as formulas, patterns, devices and compilations of information. A trade secret remains enforceable as long as reasonable efforts have been taken to keep it secret.
Can all IP be protected?
No. Each branch of IP has its own set of standards that need to be met before protection may be granted. To receive patent protection, for instance, the invention must be novel, nonobvious and useful. Copyright protection, on the other hand, must meet certain originality requirements.
Do they hold water legally overseas as well as in the United States?
It depends. Each country has its own rules and regulations governing IP, so an artist or inventor who wants to protect his or her rights in more than one country may need to make several filings. International treaties have streamlined some search and registration procedures.
Other than protecting specific corporate assets, what are some other advantages to legally protecting inventions or publications?
Intellectual property rights and other intangible property, when properly managed, can go beyond securing a business’s future it can also open new sources of value and revenue. With proper planning and the right legal team in place, your business secures its future and maximizes the value of existing and future intellectual property.
How does a company track and pursue violations of IP rights?
A company should consider having a competitive intelligence program in place. The program should not only conduct regular IP audits to monitor the company’s own IP but also that of its competitors (and for that matter, its potential competitors).
An IP audit primarily identifies IP currently owned by a company as well as IP not previously recognized. The results of a comprehensive IP audit typically improved the opportunity for a company to exploit, commercialize and profit from its intellectual property. For example, IP audits provide a ‘balance sheet’ of IP owned by the company, which may add value to the business in the event of a sale, investment or public offering. IP audits can also identify potential income streams from licensing.
WILLIAM MUNCK is chairman of Munck Butrus PC and its Intellectual Property Section. He concentrates his practice on domestic and foreign intellectual property procurement, exploitation, enforcement and counseling. He can be reached at email@example.com.
“Term loans are granted based on the level of excess or available cash flow generated from the business to repay the loan,” says Tim Mauter, vice president of FirstMerit Bank in Columbus. “Excess cash flow from operations can be used to finance additional assets or employee growth. Obtaining term financing depends on the overall financial health of the business. The borrower needs to show that the business has the ability to repay the loan.”
Smart Business talked to Mauter about the intricacies of term loans and leases.
Other than a firm repayment deadline, how do term loans differ from a line of credit?
A term loan is a debt obligation paid back over time. Payments are usually made monthly over a one- to seven-year period. Many times, term loans are used to finance business growth. Payments can be principal plus interest or principal and interest.
Term debt is usually used to finance a new office, a new piece of equipment or other fixed asset acquisition. For a service company, it might be used to finance a new contract, a new group of employees needed to serve customer needs or business growth. Through term loans, lenders are providing larger amounts of cash than the business can generate in a short time frame to purchase the asset or finance the resources needed.
Lines of credit are typically used to support fluctuation in a business cycle, i.e., temporary inventory growth or short-term growth in receivables. In both cases, the timing of cash flow determines the appropriate loan product.
What considerations should a business make when pursuing a term loan?
The payments become a fixed cost, therefore businesses should ask whether they have the necessary cash flow (with cushion) to service the debt. They should know the useful life of the asset. Ask what changes in the work force will be necessary and what facility (plant) changes will be required.
Term loans can be extended beyond the original term, but it depends on the reason for the request; there are good reasons (strong growth) and bad reasons (decline in profits and cash flow). Again, it depends on the overall financial health of the business, including leverage.
How do loans differ from leases?
Leases are normally fixed rate obligations that call for a fixed payment every month during the course of the lease. Leases are always 100 percent financing and also generally have a buyout option (balloon) that might be required, depending on the lessee’s intention with the equipment at the end of the lease.
Some of the advantages of leasing include tax savings and increased cash flow for the customer.
Leases have tremendous flexibility and can be tailored to allow for seasonal payments or to have payments lower in the early years of a lease and then greater later on when the equipment is at higher capacity. Leases also can have a variety of end of term options depending on what the client’s needs and desires are.
What kinds of leases are there?
The true lease is a lease where the bank actually owns the equipment for tax purposes and leases it back to the client. This type of lease typically has a buyout provision that allows the company to purchase the equipment at the end of the lease.
A TRAC lease is a specific type of true lease that is designed for over-the-road vehicles. These leases have set purchase options and are very common in financing trucks and trailers.
A conditional sales lease is a lease where the lessee retains the ownership of the equipment and the associated tax benefits. Like all leases, it can include soft costs, provide 100 percent financing and can have the payments tailored to meet the cash flow needs of the business. At the end of these leases, the lessee will pay $1 or a stated amount.
Which is better: loan or lease?
Each has its place. At the end of a loan, you retain the asset purchased. Generally, loans have more flexible terms that can be modified if needed. There are tax considerations, too. Businesses should review the advantages of each with an accountant.
TIM MAUTER is vice president of FirstMerit Bank in Columbus. Reach him at (614) 545-2769 or firstname.lastname@example.org.
Aterm loan is a debt obligation paid back over time, usually by making monthly payments over one to seven years.
“Many times, term loans are used to finance business growth,” says FirstMerit Bank executive vice president Robert W. Carpenter Jr., who oversees the bank’s commercial lending, business banking, commercial real estate and leasing in Cleveland. “Payments can be principal plus interest, or principal and interest.”
Smart Business talked to Carpenter about the intricacies of term loans and leases.
Other than a firm repayment deadline, how does a term loan differ from a line of credit?
Term debt is usually used to finance a new office, a new piece of equipment or other fixed asset acquisition. For a service company, it might be used to finance a new contract, a new group of employees needed to serve customer needs or business growth.
Lines of credit are typically used to support fluctuation in a business cycle — that is, temporary inventory growth or short-term growth in receivables. In both cases, the timing of cash flow determines the appropriate loan product.
Is a term loan usually easier or more difficult to obtain?
Term loans are granted based on the level of excess or available cash flow generated from the business to repay the loan. Excess cash flow from operations can be used to finance additional assets or employee growth.
Obtaining term financing depends on the overall financial health of the business. The borrower needs to show that the business has the ability to repay the loan.
Term loans are usually provided to help a business grow and/or to replace assets that wear out in the normal course of business. Through term loans, lenders are providing larger amounts of cash than the business can generate in a short time frame to purchase the asset or finance the resources needed.
What other considerations should a business make when pursuing a term loan?
The payments become a fixed cost, therefore businesses should ask whether they have the necessary cash flow (with cushion) to service the debt. Business managers should know the useful life of the asset. Ask what changes in the work force will be necessary and what facility (plant) changes will be required.
Term loans can be extended beyond the original term, but it depends on the reason for the request; there are good reasons (strong growth) and bad reasons (decline in profits and cash flow). Again, it depends on the overall financial health of the business, including leverage.
How do loan agreements differ from leases?
Loan agreements usually have financial operating covenants that the borrower is required to keep. Many times these are based on historical financial performance of the company. Leases typically do not require financial covenants.
With the many variables in a lease, a business can adjust the payment to meet the customer’s budgeted payment. The variables are structure (or end-of-lease option), equity invested in the lease, stepping payments up or down according to customer needs, setting up ‘skip payments’ to help seasonal customers, and deferring payments to allow customers to receive the equipment and allow the customer to generate receivables.
A lease is also 100 percent financing, where a loan often requires a down payment or will cover only a percentage of the value of the equipment.
What kinds of leases are there?
The true lease (with fair market value end-of-lease option) allows a business to purchase the equipment for its fair market value at the end of the term. It can include some soft costs. Payments can be structured to fit a business’s cash flow needs.
A TRAC lease is usually for motor vehicles. It allows the lessee to purchase equipment for a predetermined residual price. No down payment is required. Payments can be structured to fit cash flow needs. It, too, can include some soft costs.
A conditional sales lease offers 100 percent financing (no money down). The lessee gets the tax benefits. It can include some soft costs. Payments can be structured to fit a business’s cash flow needs. And, at the end of the lease, there can be a $1 buyout or a balloon buyout.
ROBERT W. CARPENTER JR. is executive vice president and senior commercial lender for FirstMerit Bank in Cleveland. Reach him at (216) 694-5690 or Robert.email@example.com.