Troy Sympson

As every business owner knows all too well, you can’t do it alone. You’re constantly out in the field making new relationships and bolstering existing ones. However, one of your most valuable relationships — one that often gets ignored — is the one with your bank.

Regardless of how satisfied you may be with your current bank, it’s always a good idea to “interview” your banker, if for no other reason than to ensure your banker knows your business goals and objectives for the future.

“It’s always a good idea to keep up regular contact with your banker,” says Trina Howard, a relationship manager and vice president with Wells Fargo Community Business Banking. “You can discuss your business’s goals and your banker can determine what the bank can do for you. These meetings often lead to new and unique opportunities you probably never even thought of.”

Smart Business spoke with Howard about having regular meetings with your banker and how those meetings can lead to expanded banking relationships.

What makes a good banking relationship?

The key to a good banking relationship is one involving mutual confidence and trust. You want a banker that has an unsurpassed knowledge of business products and is available to solve problems quickly. Having a collaborative professional banker who always has your best interests in mind will give your business a competitive advantage.

Always stay in contact with your banker — in good times and in bad. If you’re having an issue, if you get a new contract or make a big sale, let your banker know. Good, bad or indifferent, your bank needs to know what is going on with your business. Your bank can offer you a world of service if you just ask.

Why is this relationship so important?

Obviously, you want a banker that truly cares for your business — someone who has a genuine interest in its progress. When you invest in a long-term relationship with your banker, he or she will understand the ins and outs of your business and thus be able to quickly, effectively and efficiently respond to your needs. Good business bankers value and reward open and honest two-way communication, hold themselves accountable and only make promises they intend to keep.

How can a positive banking relationship help a company grow?

When your business banker intimately knows you and your business, he or she will be aware of your immediate goals, as well as your long-term goals, and can assist you with a variety of products to ensure your growth and prosperity through many economic cycles. Your banker’s expertise and advice is a valuable resource that’s often left untapped. Whatever you want to do — launch a new line of business, expand into new territories, do business overseas, etc. — your banker has probably done it before. This person can share his or her experiences in those areas and help you avoid some of the mistakes or missteps that are inherent in a new venture.

Bottom line, your banker should be with you during the good times and the bad. He or she will be responsive, consultative and solutions-driven to help you grow.

When looking to expand your banking relationship, what are the first questions to ask your banker?

With the recent changes in financial institutions and the volatility of the financial markets, the first thing you should ask is: How safe and sound is the financial institution? Other questions to ask might include: What banking or financing products are available to support my short- and long-term goals? How can the bank support my business’s needs based on projected growth? Does the bank provide a cohesive set of services that address my business’s diverse banking needs?

What are some different or unique banking services that business owners may not know about?

Many banks offer a wide range of products and services that customers are usually unaware of, including 401(k) planning, asset based lending, foreign exchanges, specialty physician financing through MATSCO, factoring, business evaluations, workplace banking, private banking, wealth management services and cash flow management.

If business owners are happy with their bank, why should they expand their banking relationships? Are there consequences to keeping with the status quo?

It is always beneficial to allow business bankers to review your business’s current services and products to determine if they are deriving full value. It may be determined that alternative products could save you time and money. Even if your company is healthy and growing, it may be beneficial to expand your banking relationship. Again, it’s all about communication. Your bank needs to know you, your business and your industry, and understand the complexities and challenges of it all. In turn, you need to understand the bank’s expertise and its limitations. There’s not necessarily a consequence to keeping with the status quo, but if you’re not constantly and consistently communicating with your banker, a disconnect will surely occur and you could end up missing out on some great opportunities.

Trina Howard is a relationship manager and a vice president with Wells Fargo Community Business Banking. Reach her at (281) 282-2206 or trina.howard@wellsfargo.com.

Every business owner knows that his or her company needs insurance. While all businesses have insurance, it’s also important to take the time to identify the right types of policies that will respond to the different types of claims a business may face.

“At the end of the day, you want to be overinclusive when it comes to insurance,” says Steven J. Ciszewski, a partner with Novack and Macey LLP. “Try to cover anything and everything. It’s a lot easier to narrow down your coverage later on than it is to expand it.”

Smart Business spoke with Ciszewski about business liability insurance, how to ensure that you’re properly covered and what to do in the event that you are sued.

What is the first thing a business owner needs to do with respect to insurance when the business is sued?

The most important thing to do right away is to identify the proper insurance policies that might apply to the particular situation. Let’s assume that a third party is suing your business. In that case, there are two types of liability policies that you could have: a claims-made policy or an occurrence policy.

If you have a claims-made policy and you get sued in 2010 for something that happened in 2008, the policy that is in effect for 2010 will apply, because that’s the year in which the claim was made. On the other hand, if you have an occurrence policy, the policy that was in effect in 2008 would apply, since that’s when the events or occurrence at issue took place.

What is the next step after identifying the proper policies?

Make sure you provide timely and proper notice of the event to all of your insurance companies. To make sure you get that right, you need to know and understand the policy itself and the state laws that apply to that policy.

For example, some policies require you to notify the insurance company immediately, while others say to do it ‘as soon as reasonably possible,’ or something similar to that. But, in any case, the sooner you let the insurance company know, the better.

What are the consequences of not notifying the insurance company promptly?

The worst-case scenario is that you lose coverage entirely. Even if your policy says it would otherwise apply when you provide late notice, you could be in jeopardy of losing coverage.

A big issue with notice is whether or not, under state law, the insurance company needs to show prejudice in order to avoid coverage because of late notice. A typical example of prejudice is when the underlying case against you is over with or has advanced so far along that the insurer can’t meaningfully participate in the defense of that claim.

When it gets to that point, even if you are in a state where insurance companies need to show prejudice to avoid coverage, you’re still in significant jeopardy of losing coverage.

If a business owner is sued and has insurance, who chooses the attorney?

In some circumstances, a business can select which lawyer it wants to defend it, although this usually comes at a cost, as a policy with that option is more expensive. Most policies do not allow the business to identify an individual lawyer whom it wants to defend it; however, most states say that if an insurance company is not defending the business unconditionally, the business is entitled to its own independent counsel.

In many cases, if the insurance company, for example, is defending a business but doing it under a reservation of rights, the business may be entitled to independent counsel, and in that case might be able to select that counsel.

Another possibility is that the business has a particular lawyer that it wants to defend it, but that lawyer’s hourly rate is higher than what the insurance company will approve. In that case, the business may be able to negotiate a deal where the insurance company and the business will split the fee. The insurance company will pay the hourly rate it normally pays to lawyers in that locale and the business will pick up the balance.

What happens if a business owner wants to settle the case, but the insurance company refuses?

Whenever you get a settlement demand, particularly if the settlement demand is within your policy limits, it is very risky for the insurance company to refuse the settlement. So let’s say your limit is $1 million and the plaintiff offers to settle for $750,000. The insurance company exposes itself to significant risk if it refuses that settlement offer.

There is a lot of law that says that the insured’s interests need to be paramount and that the insurance company must have a strong reason against settling, especially when the demand is within the policy limits.

In the end, there is not a lot a business can do to force the insurer to settle, but there are laws that put out the potential of extreme liability if the insurance company refuses to settle.

Take the previous example of the $1 million limit and the $750,000 settlement demand. If the insurer refuses to settle and the case goes back to trial and the business gets a $3 million verdict against it, in many cases, the insurance company will be liable for the entire $3 million, even though it exceeds the policy limits. Because of this risk, insurers are often inclined to accept reasonable settlement offers within their policy limits.

Steven J. Ciszewski is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or stevec@novackmacey.com.

Tuesday, 23 February 2010 19:00

Funding growth

The Small Business Administration was created to provide an alternative to conventional lending and to encourage entrepreneurship. The SBA offers a variety of loans designed to help businesses who may not qualify for conventional financing. These businesses can include start-ups or more mature companies.

SBA loans are win-win. They can jump-start a new business, help to accelerate growth for an existing business and help preserve cash. These loans enable banks to make more loans to businesses that typically cannot qualify for conventional loans.

“A lot of businesses think they aren’t eligible for SBA loans, that they are only for weak businesses or start-ups,” says Gregory T. Pendzich, a business relationship manager with Wells Fargo Bank. “But SBA loans really are viable options for almost any type of small business.”

Smart Business spoke with Pendzich about SBA loans, what kinds of loans are available and how your business can benefit from them.

What kinds of SBA loan programs are available?

There are three loan programs that business owners should be aware of: the SBA 7(a) term loan, the 504 term loan and the SBAExpress line of credit/term loan.

The 7(a) term loan can be used to fund a variety of purposes including partner buyouts, acquisition of businesses, business expansion, working capital, purchasing real estate/land, inventory and equipment. The maximum loan amount is $2 million. This loan is partially guaranteed by the federal government through the SBA.

The 504 term loan is primarily used to acquire real estate and complete building/leasehold improvements. The 504 loan can also be used to purchase larger pieces of equipment/machinery. The maximum project amount is approximately $5 million. The 504 loan is funded jointly by the SBA and the lender.

The SBAExpress loan program is primarily a line of credit product. However, it can also be offered as a term loan. The aim of this program is to provide working capital to be used for day-to-day operations, such as paying payroll or buying inventory. The maximum loan amount is $350,000. This loan is partially guaranteed by the federal government through the SBA.

What are the advantages of SBA loans?

The biggest advantages are less cash down, smaller monthly payments and longer terms — each benefits a business’s cash flow. For example, if you’re purchasing owner occupied commercial real estate using a conventional loan, you would typically have to put down 25 percent of the cost versus 10 percent for a 7(a) or 504 term loan.

SBA loans allow for longer terms/smaller payments: under the 7(a) program loan payments for a real estate loan can be stretched over 25 years and 20 years for a 504 loan. A similar conventional loan would generally allow a 10- to 15-year term.

What is involved in the application process?

To get started, you should contact your banker. You’ll need to provide cash flow projections, financial statements for the business and all owners, and the last three years of tax returns, both personal and business. In addition, you’ll need interim financial statements less than 90 days old, accounts receivable and accounts payable aging, if applicable. You also need to provide a summary and source of use of funds. This means you have to show how the loan proceeds will be spent.

What types of problems might you face when applying for an SBA loan in this economy?

Borrowers will need to have cash to put toward their project. The required amount will depend on the purpose of the loan. For example, a lender can require up to a 30 percent borrower cash investment for a start-up business. Businesses should make sure they understand all the requirements established by the SBA and their lender.

Character is an important component for obtaining any SBA loan. Business owners should have a clean personal credit history. All 20 percent or more business owners are required to complete a personal history form that asks if they have ever been arrested, convicted or put on probation. Background checks are completed and the findings could cancel a loan request.

It is also very important for a business to show that it has strong management and a solid business plan.

President Obama is working with Congress to continue certain enhancements from the American Recovery and Reinvestment Act of 2009 that were due to expire in February 2010. These enhancements are attached to the Small Business Job Creation & Access to Capital Act of 2009, a.k.a. ‘The Jobs Bill.’ The extension of these enhancements would run through Dec. 31, 2010.

For small businesses, the original Recovery Act temporarily eliminated SBA guaranteed 7(a) and 504 loan fees and offers tax benefits. For lenders, it temporarily eliminated loan fees on Section 504 loans. The Act also increased the guarantees on 7(a) term loans to qualified small businesses from 75 percent to 90 percent. This change reduced the risk of a loss from a loan and increased the banks’ willingness to make a loan, making more capital available to small businesses.

Gregory T. Pendzich is a business relationship manager with Wells Fargo Bank. Reach him at (281) 208-6226 or Gregory.T.Pendzich@wellsfargo.com.

Tuesday, 23 February 2010 19:00

Monetizing your losses

Weak business conditions and a tight credit market have left many business taxpayers cash strapped. And many of those taxpayers have incurred business operating losses.

However, last November’s changes to the Internal Revenue Code relating to the tax benefits of such losses will result in significant dollars being put back into the hands of many taxpayers. The Worker, Homeownership and Business Assistance Act of 2009 is expected to benefit businesses by more than $33 billion in 2010, says Steven Y. Patler, JD, CPA, and a senior manager at Cendrowski Selecky PC.

“Companies that avail themselves of these changes in the law and that mine the existing provisions of the Internal Revenue Code may now be able to survive the rocky economy unscathed,” Patler says.

Smart Business spoke with Patler about how taxpayers can best position themselves for obtaining tax refunds from the government this year.

How do the new loss rules work?

If taxpayers had business operating losses in 2008 and/or 2009, they may have the opportunity to carry some or all of their losses back for up to five years to offset taxable income. Consequently, all or a part of the taxes paid during those prior five years may be refunded to the taxpayer.

Taxpayers have the ability to choose a carryback period of between two and five years. This is a change from prior law in which taxpayers were generally limited to carrying such losses back only two years. If a taxpayer elects to go back five years, there are additional income limitations that may apply in the fifth year.

Although there are no restrictions as to the size of a business eligible to take these losses, a taxpayer may only make the election to carry back losses beyond two years once, either in 2008 or 2009, unless the business meets the requirements of an eligible small business ($15 million or less in gross receipts). So it may be possible for an eligible small business to carry losses incurred in both 2008 and 2009 back five years.

The new rules apply to corporations as well as to individuals who may have net operating losses through self-employment or through a pass-through entity, such as an S corporation or partnership. Taxpayers receiving TARP money are not eligible for the liberalized carryback rules.

To obtain the largest refund possible under the law, a taxpayer must do some substantial planning. One must select the proper year to elect carryback, decide which years to carry back the losses to and determine the actual amount of the loss.

For some taxpayers, it may, in fact, not be beneficial to carry back losses to prior years and to use their losses in future years by irrevocably electing to relinquish a loss carryback. Every taxpayer’s situation is different, and generalizations cannot be made.

Is there an expedited procedure to obtain a refund due to a net operating loss?

Yes. Both individuals and corporations with losses that can be carried back can file an application for tentative refund. The advantage of filing for a tentative refund is that the funds are usually available within 45 days.

A normal refund request is subject to IRS examination prior to payment; if the refund is in excess of $2 million, it is subject to further review by the Joint Committee on Taxation.

It is important that the relevant forms be prepared without material errors or omissions to avoid rejection. This quick refund application must be filed after the tax return is filed for the year of the loss. Typically, the quick refund application must be filed within 12 months after the last day of the loss year, but the new law is permitting additional time for certain taxpayers.

Another related provision of the Internal Revenue Code permits a corporation expecting a net operating loss in the current year to postpone paying all or some of its income tax liability from the immediately preceding year by filing a Form 1138.

Are there other tax-related opportunities for taxpayers to improve cash flow?

Yes. Taxpayers can enhance cash flow by reviewing accounting methods to accelerate deductions and defer income, examining business activity to identify ordinary loss opportunities, adjusting current estimated tax payments, identifying federal and state tax credits, and applying for a quick refund of corporate estimated tax overpayments.

How can a company obtain a quick refund of estimated tax?

A corporation that has overpaid its estimated tax throughout the year does not have to wait until it files its income tax return to get back the overpayment. A corporation would need to file a form for a quick refund of overpaid estimated tax by the 15th day of the third month after the end of the tax year.

For example, a calendar-year corporation must file by March 15, 2010, for a quick refund relating to 2009 estimated payments.

It is important to note that this rule applies only to corporations, not individuals, and the overpayment must be greater than 10 percent of the revised expected tax liability. The IRS must act with 45 days of filing unless the form is filed with errors or omissions.

Steven Y. Patler, JD, CPA, is a senior manager at Cendrowski Selecky PC. Reach him at (248) 540-5760 or spatler@cendsel.com.

Monday, 22 February 2010 19:00

Growing business; building culture

Dan Gilbert has a keen eye for detail. If your company’s signage, Web site or marketing materials contain any kind of misspelling, misdirection or misleading verbiage, he’ll see it and he’ll let you know about it.

Take, for instance, the sign Gilbert saw at an automobile repair shop offering “alignment” — a sign that was off-kilter. Or the store that featured two signs near its entrance, one reading “Store Closing” and the other “Now Hiring.” Or, better yet, the store with the neon “scrapbooks” sign that unfortunately had the first “s” burnt out.

Absurdities like these are what Gilbert thrives on. As the chairman and founder of Quicken Loans Inc., the majority owner of the NBA’s Cleveland Cavaliers and the American Hockey League’s Lake Erie Monsters, and the operator of Quicken Loans Arena, Gilbert has more than a full plate. Yet, there’s always time in his day to focus on the little things that truly make a business great.

“If you do just one thing better than your competition, they’ll eventually figure it out and your advantage will be gone,” Gilbert says. “But, if you do a thousand little things differently, your competition won’t be able to keep up and you’ll be successful.”

Opportunities to make a difference are everywhere, says Gilbert, and they’re usually found in the little things. Quoting Al Pacino from the film “Any Given Sunday,” Gilbert says, “The inches we need are everywhere around us.” That quote is just one of Gilbert’s “isms” — guiding principles that shape the culture at all of Gilbert’s companies.

Whenever a new employee begins work at one of Gilbert’s companies, he or she is given “Isms in Action,” an employee handbook that defines and highlights the “isms.” But don’t think these handbooks are just given out, only to be placed in a desk drawer and never looked at again. Gilbert actually takes the time to spend a full day with the new employee, going over the “isms” and how things should be done.

From always being aware of your surroundings to being obsessed with finding a better way, the “isms” focus on empowering employees to do whatever is needed to grow themselves and the business. There’s no red tape or committees at Gilbert’s companies, just employees who are trusted and expected to do whatever needs to be done. To Gilbert, failure is an option, as long as it’s not intentional. Employees can’t be afraid to fail; they have to be able to take chances. As a leader, you have to foster creativity.

“You don’t want people who ‘just work here,’ you want empowered people who aren’t afraid to do whatever it takes to grow the company,” Gilbert says. “If you don’t build a good culture, there is no question that a bad culture will take its place.”

With a strong leader and empowered employees, Gilbert’s companies are set up for success. Still, those organizations are always looking for ways to improve, even when things are going great. And, the onus of improvement isn’t just placed on managers. Expecting managers to fix all the problems is, according to Gilbert, like expecting pilots to fix the plane. Often, front-line employees have the answers you’re seeking; they just never get asked. In other words, encourage everyone in the organization to submit ideas and find a way to “build a better mousetrap.”

And this isn’t your typical suggestion box that gets emptied and analyzed once a year. Whenever one of Gilbert’s employees submits an idea, someone gets back to him or her. Sometimes the idea is implemented; other times it’s not. But the submitter always gets feedback and an explanation of why his or her idea will or won’t work.

“It’s like the Napster of business,” Gilbert says. “Every day employees are ‘downloading’ ideas. Those ideas build and grow, and in turn, the company builds and grows.”

Another “ism” that helps Gilbert’s companies become and remain successful is: “Numbers and money follow; they do not lead.”

“Business will never be what you forecast it to be. Spreadsheets don’t analyze alternative universes,” Gilbert says. “Those who focus on expenses and expenses alone are destined to go out of business. Focus on revenue growth, not cost control.”

More than just sports

In addition to Quicken Loans and the sports franchises, Gilbert and his partners also operate and invest in several other businesses, including ePrize, based in Pleasant Ridge, Mich.; Fathead LLC in Livonia, Mich.; Veritix in Cleveland; Boston-based Xenith LLC; and Xeko in Seattle.

Gilbert was Rawlings Sporting Goods’ largest shareholder and was instrumental in effecting the sale of Rawlings to K2 in March 2003. He is a founding partner in private equity group Rockbridge Growth Equity and an investor and financier with Rock Companies.

On top of all that, Gilbert launched Bizdom U in Detroit: a nonprofit academy that trains, mentors and finances young entrepreneurs and their start-up businesses. Also, in November 2009, Gilbert successfully backed a proposal to authorize first-class casinos in Ohio’s four largest cities, which will create 34,000 Ohio jobs and generate millions of dollars in tax revenue for public services, safety and schools.

Related content

Read more about Dan Gilbert and his "isms" in Smart Business Akron/Canton.

See how the Cleveland Cavaliers go above and beyond to serve their fans.

Len Komoroski, president, Cleveland Cavaliers and Quicken Loans Arena, talks about embracing challenges and leading change.

Danny Ferry, general manager, Cleveland Cavaliers, on how to work with top performers to improve the organization.

Visit Smart Business’s YouTube channel for an exclusive video interview with Dan Gilbert.

Wednesday, 25 November 2009 19:00

Turning the investment corner?

After a long and tumultuous 2009, many investors are breathing a collective sigh of relief. The recession is (seemingly) behind us and things are slowly starting to make a turn for the better.

The upturn is naturally leading to more investment opportunities, but nevertheless, people are still somewhat wary of making a major investment. This type of thinking needs to change, says Syd Saperstein, a senior vice president and the division manager of Special Corporate Financial Services with Comerica Bank.

“Investment opportunities exist, even in down economies,” Saperstein says. “Even if you’re not ready to invest right now, it’s a great time to put your money in a position to get ready to invest.”

Smart Business spoke with Saperstein about today’s investment opportunities and how to properly take advantage of them.

Why are we seeing increased interest in investment opportunities?

During the economic downturn — and the subsequent and lingering credit crunch — reasonable opportunities for investing slowed significantly. But, now we’re seeing a byproduct of the downturn: new investment opportunities at reduced enough prices to be interesting. Take, for example, uncompleted real estate development projects. They have sat stagnant and lost value, creating an opportunity for investors and developers who are well backed to take advantage of the lower prices. These projects are worth finishing, which can lead to a healthy profit, even in today’s market. I’ve seen a growing demand for such opportunities in the last six months.

Also, this concept is not limited to just real estate. There are many companies that make good acquisition targets. Many such companies relied heavily on credit and, with the availability of credit deeply curtailed, also lack the ability to raise capital. This creates other opportunities to take advantage of, because those internal and external funding sources have dried up. With the credit environment being what it is, venture capital leaning on bank lines isn’t what it used to be either; so private equity fund-raising has become the viable alternative.

How can a business or an individual take advantage of these opportunities?

Bottom line, money talks. Having money set aside that you can point to when negotiating a purchase puts you in a very powerful position. Given the low interest rates that people have to accept today, the opportunity cost on the investment set-aside funds sitting at the ready does not make for a difficult decision. Having cash in a pooled investment-ready bank account will deliver the same return as if it were left sitting in an investor’s own individual bank account. There’s not a lot of opportunity cost downside in today’s cash investments, so you’re probably not losing interest by putting your money into an investor’s pooled opportunity ready bank account that has a good chance of future investment success.

How do you know your money is safe while pooled?

That is always a difficult part of any transaction. First of all, go with what and whom you know. Commercial banks of reasonable size with adequate liquidity and capital are always better bets. They are the reliable source of the interest income during the cash on deposit phase of the potential investment. Also, you want the financial institution or the consolidator or holder of the funds to have a lot of experience with these types of transactions.

The tenor or the nature of the deposit that is held is also extremely important. For example, just having money in the hands of the promoters of an investment fund or pool and relying upon them to hold the money for you in their deposit account where they control the funds is not as desirable as having money in the hands of a trusted third party, such as a qualified escrow holder. You have to have certain conditions attached to the money: how it is collected, held, invested and disbursed. The best scenario of all is when the escrow holder is also the depository bank.

What roles do funds aggregators play?

Aggregators are really the people who are consolidating all the investment funds in one place. They could be the promoters, developers, general partners or leading members of an LLC that see the opportunity. The aggregators’ mission is to recruit or solicit investments from other people, usually through a private placement or similar offering document. So, on one hand, you have the aggregators and, on the other, you have the bank involved as a depository. The bank is the one that really consolidates all the funds that are being pooled into one place. It’s worth mentioning that it’s not necessary that these pools are single-purpose; they can also be multipurpose to take advantage of several opportunities as they arise over time out of one fund.

When the money is held by a third party, the funds will be deposited with a bank acting as the depository for the investment promoter, ideally, under the terms of an escrow agreement that protects the individual investors. So, if they do not go forward into the investment, the funds are returned to the investors, with interest and without any hassles or delay.

Remember, each deal and each opportunity is different, so custom drafting of controlling documents that say how the funds will be received, held, invested and disbursed needs to be addressed. Make sure the documentation of the financial institution that is going to hold the funds and that of the promoters and the lawyers negotiating the terms are compatible. The deposit has to be in sync with what the offering memorandum says will happen, and that’s where a good depository consolidator/escrow holder is so important. You don’t have to go back too many months to read about how nonbank investment intermediaries acting as funds holders proved disastrous for the investors.

Syd Saperstein is a senior vice president and the division manager of Special Corporate Financial Services with Comerica Bank. Reach him at (415) 477-3246 or ssaperstein@comerica.com.

Wednesday, 25 November 2009 19:00

Turning the investment corner?

After a long and tumultuous 2009, many investors are breathing a collective sigh of relief. The recession is (seemingly) behind us and things are slowly starting to make a turn for the better.

The upturn is naturally leading to more investment opportunities, but nevertheless, people are still somewhat wary of making a major investment. This type of thinking needs to change, says Syd Saperstein, a senior vice president and the division manager of Special Corporate Financial Services with Comerica Bank.

“Investment opportunities exist, even in down economies,” Saperstein says. “Even if you’re not ready to invest right now, it’s a great time to put your money in a position to get ready to invest.”

Smart Business spoke with Saperstein about today’s investment opportunities and how to properly take advantage of them.

Why are we seeing increased interest in investment opportunities?

During the economic downturn — and the subsequent and lingering credit crunch — reasonable opportunities for investing slowed significantly. But, now we’re seeing a byproduct of the downturn: new investment opportunities at reduced enough prices to be interesting. Take, for example, uncompleted real estate development projects. They have sat stagnant and lost value, creating an opportunity for investors and developers who are well backed to take advantage of the lower prices. These projects are worth finishing, which can lead to a healthy profit, even in today’s market. I’ve seen a growing demand for such opportunities in the last six months.

Also, this concept is not limited to just real estate. There are many companies that make good acquisition targets. Many such companies relied heavily on credit and, with the availability of credit deeply curtailed, also lack the ability to raise capital. This creates other opportunities to take advantage of, because those internal and external funding sources have dried up. With the credit environment being what it is, venture capital leaning on bank lines isn’t what it used to be either; so private equity fund-raising has become the viable alternative.

How can a business or an individual take advantage of these opportunities?

Bottom line, money talks. Having money set aside that you can point to when negotiating a purchase puts you in a very powerful position. Given the low interest rates that people have to accept today, the opportunity cost on the investment set-aside funds sitting at the ready does not make for a difficult decision. Having cash in a pooled investment-ready bank account will deliver the same return as if it were left sitting in an investor’s own individual bank account. There’s not a lot of opportunity cost downside in today’s cash investments, so you’re probably not losing interest by putting your money into an investor’s pooled opportunity ready bank account that has a good chance of future investment success.

How do you know your money is safe while pooled?

That is always a difficult part of any transaction. First of all, go with what and whom you know. Commercial banks of reasonable size with adequate liquidity and capital are always better bets. They are the reliable source of the interest income during the cash on deposit phase of the potential investment. Also, you want the financial institution or the consolidator or holder of the funds to have a lot of experience with these types of transactions.

The tenor or the nature of the deposit that is held is also extremely important. For example, just having money in the hands of the promoters of an investment fund or pool and relying upon them to hold the money for you in their deposit account where they control the funds is not as desirable as having money in the hands of a trusted third party, such as a qualified escrow holder. You have to have certain conditions attached to the money: how it is collected, held, invested and disbursed. The best scenario of all is when the escrow holder is also the depository bank.

What roles do funds aggregators play?

Aggregators are really the people who are consolidating all the investment funds in one place. They could be the promoters, developers, general partners or leading members of an LLC that see the opportunity. The aggregators’ mission is to recruit or solicit investments from other people, usually through a private placement or similar offering document. So, on one hand, you have the aggregators and, on the other, you have the bank involved as a depository. The bank is the one that really consolidates all the funds that are being pooled into one place. It’s worth mentioning that it’s not necessary that these pools are single-purpose; they can also be multipurpose to take advantage of several opportunities as they arise over time out of one fund.

When the money is held by a third party, the funds will be deposited with a bank acting as the depository for the investment promoter, ideally, under the terms of an escrow agreement that protects the individual investors. So, if they do not go forward into the investment, the funds are returned to the investors, with interest and without any hassles or delay.

Remember, each deal and each opportunity is different, so custom drafting of controlling documents that say how the funds will be received, held, invested and disbursed needs to be addressed. Make sure the documentation of the financial institution that is going to hold the funds and that of the promoters and the lawyers negotiating the terms are compatible. The deposit has to be in sync with what the offering memorandum says will happen, and that’s where a good depository consolidator/escrow holder is so important. You don’t have to go back too many months to read about how nonbank investment intermediaries acting as funds holders proved disastrous for the investors.

Syd Saperstein is a senior vice president and the division manager of Special Corporate Financial Services with Comerica Bank. Reach him at (415) 477-3246 or ssaperstein@comerica.com.

Wednesday, 25 November 2009 19:00

Global banking

Businesses that want to succeed need to recognize and take advantage of the fact that competing globally is more important than ever.

And doing business internationally is not as difficult as you may think. With the right technology, even the smallest of businesses can engage in the global marketplace through the Internet.

But, global expansion is more than just selling your product overseas. There are a lot of factors to consider, the most important of which is how you will find and make use of international banking services.

“You have to work with a bank that understands your business, your industry and the goals you want to achieve,” says Darlene Nowak-Baker, executive vice president and lending manager with First Place Bank. “By taking advantage of the international banking services your bank offers, you’ll be able to successfully compete on a global scale.”

Smart Business spoke with Nowak-Baker about international banking, the services your bank can provide to help you succeed and how to use those services to expand your business globally.

Why is now a good time to take advantage of international banking services?

Everything is global now. If you want to remain competitive, you almost have to expand your business globally. Because the U.S. dollar is relatively weak right now against other currencies, it’s becoming easier to find overseas business partners who are interested in your product. Foreign bank accounts extend your international reach by leveraging local accounts and services in the countries that are essential to your business.

When the U.S. dollar regains strength against foreign currencies, should companies abandon international banking?

The current outlook for the dollar is continued weakness due to low interest rates, persistent liquidity concerns and the still-rebounding housing market. Still, the dollar will regain strength at some point, and when you establish a foreign trade opportunity, you build long-term relationships that have the ability to stay successful no matter what the domestic economic cycle happens to be.

Also, once you go global, it’s difficult to go back. There are always going to be open borders, so international banking will always be a viable option.

What are some typical products available in international banking?

Typical financing products help customers receive the credit they need to achieve their global business goals, with financing options to expand overseas operations. Some typical financing products include trade cycle financing, import, export and standard letters of credit (LCs), documentary collections, short-term and medium-term financing, and export-risk mitigation.

International LCs streamline the fine points, reduce the uncertainties of international payments and generally make it easier for your business to trade with new vendors and customers, protecting both parties. The bank issues the LC guarantees payment on the buyer’s behalf, and to receive payment, the seller must present documents as required by the terms of the LC.

The use of LCs provides confidence in making and receiving payments from foreign companies. Domestic companies can make sure their suppliers receive timely payment, and they also minimize the risk of not being paid by overseas customers.

How can commercial letters of credit help a business operate globally?

Commercial LCs are issued by the importer’s local bank and can be authenticated by a U.S. bank. When they are used for export, they secure payment from the company importing your goods. When they are used for an import, they are used as an instrument for paying overseas suppliers and are issued by your bank, thereby guaranteeing payment on your behalf.

Your supplier is then required to present documents to receive payment. These LCs are different than traditional standby LCs, which are commonly used in domestic sales transactions and for security deposits, insurance premium payments and/or in lieu of bonds.

What services does an international banker provide that can help you succeed globally?

First and foremost, your banker needs to assess your needs and goals in order to design a program that will best benefit you and your business. Your bank’s international banking services department should provide you with LCs; escrow; international collections, both bank-to-bank incoming and bank-to-bank outgoing; international check collections and encashment; international bank notes, both buying and selling; international wire transfers, both incoming and outgoing; and forward contracts. There are also the usual currency exchange services.

Can an international banker also provide language skills?

Your international banker will often be multilingual, but he or she is merely a provider of products, not a conduit between you and the foreign company you’re doing business with. Most banks can provide an interpreter or have documents translated for the customer if need be, but your banker’s focus should be on servicing you, not on negotiating documents.

In addition, it is standard that most contracts involving U.S. companies, both originating in the United States and those originating abroad, are written in English.

Darlene Nowak-Baker is an executive vice president and lending manager with First Place Bank. Reach her at (248) 358-6403 or DNowak-Baker@fpfc.net.

Wednesday, 25 November 2009 19:00

Gifting and transferring

With depressed valuations and advantageous capital gains rates, now is an ideal time to transfer all or part of your business to the next generation.

“There are several techniques that estate planners can use in order to accomplish transfers of interest, and they are all based on taking advantage of the current tax and economic environments,” says John T. Alfonsi, CPA/ABV/CFF, CFE, CVA, a managing director of Cendrowski Corporate Advisors LLC.

Smart Business spoke with Alfonsi about the current tax environment and why now is an opportune time to gift or transfer your business.

What is happening in the area of estate tax reform?

As it stands right now, the estate tax is going to be repealed for 2010, meaning that when people die, their estate will not owe any estate tax. For 2009, there is a $3.5 million estate tax exclusion — the first $3.5 million is tax-free and anything above that is taxable. In 2011, it is expected that there will be a $1 million estate tax exclusion and a maximum 60 percent tax rate (including surcharges).

Again, this is all being discussed and hashed out right now. The majority of pundits believe that we won’t have a zero percent estate tax in 2010. We won’t go back to where we were before, though; some kind of happy medium will be found.

How will gifting be affected by estate tax reform?

Right now, the annual gift tax exclusion is $13,000 per person, per year, and it looks like it will remain that way through 2010. Included in the $3.5 million estate tax exclusion for 2009 is a $1 million lifetime gift tax exclusion. So people can take advantage of that $1 million exclusion and still have $2.5 million left over to avoid or mitigate estate tax.

Also, part of estate tax reform could include the elimination of discounts when calculating the fair market value of closely held businesses. Typically, discounts are given due to a lack of marketability or a lack of control. If you were gifting a minority interest in a business, those discounts could have been significant and reduced the value, which would have allowed you to gift away more or not use as much of the gift tax exclusion.

With the possibility of those discounts being taken away, it’s best that you take care of your gifting now, while you can still get the discounts. If you do take advantage of these discounts, make sure they are documented and calculated by a valuation professional.

How do capital gains rates and interest rates tie into all of this?

For 2009-10, the maximum long-term capital gains rate is going to be somewhere in the zero to 15 percent range. In 2011, the Bush tax cuts will expire, and the 15 percent rate will increase to 20 percent. Depending on which tax bracket you are in for 2009-10, you could see significant tax savings by selling all or part of your company in those years, rather than waiting to do so in 2011.

In addition, interest rates are extremely low right now — the short-term rate (any obligation or note with a term equal to or less than three years) is less than 1 percent, the mid-term rate (greater than three years or less than or equal to nine years) is right around 2.5 percent, and the long-term rate (anything greater than nine years) is 4 percent. The combination of a depressed economy, low interest rates, impending estate tax reform and increased capital gains rates is creating a great opportunity to transfer all or a portion of a business to a new owner.

What are the other benefits of transferring a business now?

From a gifting perspective, taking advantage of the $1 million lifetime gift tax exclusion, depressed valuations and the $13,000 annual gift tax exclusion means you can transfer more of your business now than you could in the past, as well as in the future when valuations increase. With the long-term capital gains rates being at zero to 15 percent, you can structure a gift or a transfer as a sale of the interest, thus taking advantage of the low tax liability and taking the burden away from future generations.

Low interest rates likewise provide opportunities for intrafamily transfers as well as the use of grantor remainder annuity and grantor remainder income trusts. As important as lower capital gains rates and interest rates are, the current economic climate provides another incentive to transfer. Transferring business interests before an economic recovery results in an increased value of such businesses can save estate tax, as well. At this point, you can transfer or gift assets at almost cost.

What are the pitfalls to watch out for?

There are always issues that come up when transferring or gifting a business. You’re not necessarily giving up control of your business, but you are at least giving up a piece of your business interests. This is why people need to balance their estate tax goals with their business goals and their personal issues.

Quite simply, many people prefer not to give up anything and are willing to pay a higher estate tax. But, if you want to take advantage of the current environment and reduce estate taxes, a properly structured gift or transfer can be a valuable asset. Besides offering great tax benefits, a gift or a transfer could help you save money now, rather than having it all sorted out after your death.

You never know what is going to happen in life. Therefore, keep your estate plan flexible. Plan for what you know now, but maintain the ability to adapt if and when tax laws change.

John T. Alfonsi, CPA/ABV/CFF, CFE, CVA, is a managing director of Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or jta@cendsel.com.

Friday, 25 September 2009 20:00

Equipping your business

You’ve got a great business plan, a competent team surrounding you and a can’t-miss product — you’re ready to take the market by storm.

Before your plan can get off the ground, however, you need equipment, whether it’s trucks and machinery or computer hardware and software. But not every business owner knows how and when to properly finance that equipment.

“You have to anticipate the need for equipment,” says Stefanie Fitzgerald, a business sales officer with Wells Fargo Bank. “Once you know what equipment you need and when you need it, talk to your banker. The more time you give your banker, the better your options will be.”

Smart Business spoke with Fitzgerald about how business owners can find the best equipment financing for their specific needs.

What types of equipment can businesses finance? ?

You can finance virtually any kind of equipment your company needs. Whether it’s new or used, you can finance vehicles, business aircraft, trucks and trailers, bulldozers and other heavy machinery, computers, etc. If the machinery/equipment has an intrinsic value and the bank is capable of taking it as collateral, you can usually finance it.

Why is it important to have a business plan when financing equipment? ?

Any time a company applies for any type of financing, it’s important to present the request with a detailed business plan. It will help the bank evaluate your management team as well as the financial strength of your company. A good business plan is always a valuable tool, whether seeking financing or not. Most importantly, it will help you determine when and how to buy or replace equipment. Decisions like that are very complex and involve many more considerations than which model to buy. Having a plan in place will help you with those tough decisions and ensure that you always have the equipment and capital your business needs to thrive.

Can multiple pieces of equipment be financed? ?

Yes, you can do an individual loan for a certain piece of equipment, or if you anticipate that you’ll have multiple equipment needs over a certain period of time, you can do an equipment finance line of credit. With an equipment finance line of credit you can purchase equipment as you need it, without having to get reapproved. You can do a lease or a loan, the rate is predetermined and, instead of making individual payments, you have one combined payment.

When should companies apply for equipment financing? ?

Common times that businesses apply for equipment financing are when they have capital expenditures, are doing an expansion, moving locations, planning to introduce a new product line, and/or looking to upgrade or replace old equipment. But since every business is different and equipment needs vary, it’s best to work with your accountant and tax adviser to determine what’s best for you. You should always, however, arrange for financing before you start shopping for equipment. This will allow you to separate the cost of the equipment from the cost of financing, and it will assure that the deal won’t be delayed or fall through at the last minute due to financing problems.

What factors should business owners consider when financing equipment? ?

Numerous factors come into play when financing equipment. Ask yourself the following questions: Do I need 100 percent financing? Am I prepared to make a down payment? Do I want a fixed or floating rate? Do I want a lease or a loan? What’s more important, depreciation or lower payments? Do I want off balance sheet financing? What is my capital expenditures budget? It’s always good to consult with your business banker in answering these questions.

Are there special interest rates or payment plans available for equipment financing? ?

Yes, you can customize a financing structure that meets your exact needs. There are many different transaction types, structures and terms, all of which can be tailored to match your cash flow, tax and accounting needs. Work closely with your banker to determine which of the many different elements of equipment-financing loans will work best for you.

Do certain types of equipment financing offer tax advantages? ?

Yes, especially this year with the American Recovery and Reinvestment Act, which includes bonus depreciation and an expense deduction. The bonus depreciation provision allows a taxpayer to take an increased depreciation deduction on his or her 2009 taxes for qualified business assets purchased this year. This front-loaded deduction offers a major benefit to businesses. The expense deduction is also a nice benefit. If your company buys certain categories of equipment in 2009, you may be able to deduct the full cost of that equipment, up to $250,000. It’s always smart to visit with your CPA and tax adviser on a regular basis to see what opportunities are out there.

How can business owners apply for equipment financing? ?

You can apply online, but it’s recommended that you go to your bank and have a face-to-face discussion with your business banker, who will be able to customize the best financing plan for your needs. If you’re starting a relationship with a business banker, look for experience and knowledge. You want to find someone that knows your business and the or industry it’s in as well as someone who will be with you for the long haul.

Stefanie Fitzgerald is a business sales officer with Wells Fargo Bank. Reach her at stefanie.fitzgerald@wellsfargo.com or (409) 861-6371.