International expansion is a great way to grow as the U.S. economy slowly recovers, and the population and per capita gross domestic product of countries such as India and China continue to rise.

But finding funding for exports can be difficult, unless you leverage a government-backed program.

“Why turn away sales when you can get working capital assistance through government programs to penetrate red-hot foreign markets?” says Alfred Ho, vice president and enhanced credit specialist with California Bank & Trust.

Smart Business spoke with Ho about the benefits of leveraging guaranteed export financing.

What is the working capital guarantee program?

U.S. manufacturers were struggling to compete overseas, as foreign sales and receivables are generally excluded from traditional lending programs.

So, to spur exports and domestic hiring, the federal government offers guaranteed financing programs administered by the U.S. Small Business Administration (SBA) and the Export-Import Bank of the United States (Ex-Im Bank).

The loan proceeds under these programs can be used to purchase supplies and equipment, hire staff or, in the case of the SBA’s Export Express program, even attend an overseas trade show.

And because the terms are flexible, owners can use the loan proceeds to fulfill a large contract or several small deals.

How do the programs help small businesses?

The programs encourage banks to lend to small businesses by guaranteeing 90 percent of the loan amount and allow loan officers to consider foreign receivables and work-in-progress during the underwriting process.

Plus, if a standby letter of credit is required to support a bid bond, advance payment guarantee or performance bond, the collateral requirement to have one issued is only 25 percent, instead of the 100 percent in traditional cases. This provides an edge for a U.S. company in its quest for overseas contracts.

How much can companies borrow and what does it cost?

The SBA Export Working Capital program permits loans below $5 million. It charges an upfront fee of 0.25 percent of the loan amount and an annual utilization fee of 0.55 percent, which is assessed monthly.

There’s no limit to how much you can borrow from Ex-Im Bank, and its upfront fees range from 1 to 1.5 percent of the loan amount. The loan interest rate is based on the prime lending rate plus a spread. Interest rates for larger loans are based on the London Interbank Offered Rate.

What are the eligibility requirements?

Requirements differ among the programs but they all require a firm purchase order prior to advance and, minimally, shipment from a U.S. port to a country acceptable to Ex-Im Bank. Goods and services shipped must have at least 51 percent U.S. contents.

Certain products are excluded from the programs. A company must also have a positive net worth and be profitable for the last three years to qualify.

For other qualifications and restrictions, talk to your lender or visit the SBA or Ex-Im Bank websites.

How can business owners find a participating lender?

Your local SBA or Ex-Im Bank representative can provide referrals, but you can look for a Delegated Authority lender who has the ability to expedite your loan.

Your banker can walk you through the lending process and share helpful ideas. The banker should be able to suggest ways to lower the risk of international commerce.

The important thing is: Don’t venture into the international marketplace alone. Find a competent banker to serve as your guide.

Alfred Ho is vice president, enhanced credit specialist, at California Bank & Trust. Reach him at (213) 593-2118 or alfred.ho@calbt.com.

Insights Banking & Finance is brought to you by California Bank & Trust

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Merchant services affect the majority of companies — more than 90 percent of online purchases use credit cards.

“If you’re not sure if merchant services is the right fit for your company, think about what your competitors are doing. If you don’t accept cards today, then prospective customers may be going to other businesses,” says Jan Mitrovich, manager for Treasury Management and Merchant Services at California Bank & Trust.

Smart Business spoke with Mitrovich about how to understand merchant processing services and costs, and when to talk to your banker about new solutions.

How do you know if your company is using merchant services correctly?

Every company should consider where it’s doing business and how it’s transacting with customers. Examine whether you are effectively leveraging all your channels for sales opportunities. You may have a storefront that does terminal credit card processing. However, other payment options, including Web-based and e-commerce, may be worth considering.

How much of you sales efforts need to be in the field, such as industry shows? A mobile solution can extend your customer outreach while providing convenience to your customers.

The merchant services environment is continually changing. There are varying degrees of complexity, from processing basic transactions through a card reader, to merchants that need multiple payment channels, gift and loyalty card programs, check verification services and more. Your merchant partner can help you better understand your options and select the right solutions for your business.

What’s important to know when getting a merchant account?

The processing transaction fee can turn off businesses, but they must consider the value proposition of expanding their customer base by accepting more transactions.

Depending upon the transaction type and how it is processed, fees will vary, which gets confusing. Merchant processors also don’t always present the statement information and pricing in the same fashion. It’s common for business owners to think a quoted rate is the all-in cost.

Be aware of hidden fees. For example, only some organizations do pass through pricing for the interchange fees. A discount rate doesn’t necessarily compare apples-to-apples, so a more important question is, ‘What is the cost of the service?’

You also need to understand and educate your employees on the associated responsibilities and risks as a merchant processor, such as protecting customers’ sensitive data. Validation of payment card industry compliance is an important step to ensure credit card data is being protected. Data breach coverage can protect merchants from the cost associated with a data breach, which can easily run $35,000 or more.

What additional factors help determine which provider is the best fit?

One differentiator is customer service. Banks typically have a higher level of customer service, like 24/7 call support, than independent sales organizations.

You also need to consider whether to lease or buy equipment. The industry is moving toward chip-enabled cards that will require companies to change equipment during the next few years. Take the time to understand your options and pricing structure, as well as if any equipment is proprietary.

Finally, cut-off times for transactions and settlements can be a game changer. Settlement time frames differ, anywhere from next day to 30 days, depending upon the vendor. If you want to improve cash flow, in some cases, you can process transactions up to midnight with next-day availability of those funds.

How should you review current services?

Take the time to review your merchant statements and pricing. If your business model or activity levels have changed, talk with your merchant representative. New services or tools may be available that can create processing efficiencies for your business. For example, card-present transactions are generally lower risk and thus cost less to process, while manually keyed transactions cost more. You could make internal changes to reduce the volume of keyed entry transactions or possibly process transactions through a lower-cost channel.

Jan Mitrovich is manager of Treasury Management and Merchant Services at California Bank & Trust.

Insights Banking & Finance is brought to you by California Bank & Trust

Published in Los Angeles

Whether your wish list includes manufacturing, medical, transportation or technology equipment, how you finance major purchases may not only impact the return on your investment but the success of your entire company.

“Financing decisions impact cash flow and a company’s ability to capitalize on opportunities or respond to adversity,” says David Beckstead, Pacific Region sales manager for the Equipment Financing Division at California Bank & Trust. “Executives need to weigh their options carefully before making a decision.”

Smart Business spoke with Beckstead about the need for prudent financing decisions when purchasing machinery and equipment.

What should executives consider as they are reviewing various financing options?

The rule of thumb is to match the financing terms to the life of the asset. In other words, it’s best to use short-term financing for short-term business needs, and longer-term financing for long-term business assets such as equipment that will generate revenue or reduce operating costs for the foreseeable future.

You can avoid finance charges and interest by paying cash, but leasing the equipment or borrowing the funds lets companies preserve capital for other purposes. You should also consider the tax implications and the ultimate cost of the equipment along with your ability to make a substantial down payment to secure a traditional bank loan.

When does leasing make sense?

Leasing makes sense when companies want to preserve cash for future growth or expansion, they need flexibility or they don’t have a lot of cash to put down. Since leasing companies usually maintain ownership of the asset, companies can upgrade or return the equipment should their needs change. For example, you can align the lease terms with a customer agreement or upgrade to a bigger, faster model as your company grows. Plus, most leasing companies don’t require a down payment and it may be possible to negotiate a longer-term payment plan, improving cash flow.

With leasing you can usually deduct the lease payments as a business expense on your tax return, and on short-term leases the rental expense may provide a better tax benefit than depreciating the asset. You may be able to transfer the risk of ownership to the leasing company depending on the type of lease.   

How can executives research the market and secure favorable leasing terms?

Prioritize your needs, and then search for the best combination of rates, terms, flexibility and customer service by contacting several firms. Bank leasing companies usually have high underwriting standards but lower rates, while finance companies can be more lenient lenders but generally charge higher rates. Vendor finance companies are a third option and are generally the most flexible about taking back or exchanging equipment. However, they usually charge higher rates.

Beware of upfront payments and fees, hefty residual payments, pay-off fees and other clauses that may boost the overall cost of the equipment. In fact, it’s a good idea to ask a knowledgeable third party to review the agreement so you don’t forsake the benefits of leasing by accepting disadvantageous terms.

What should executives look for in a leasing firm?

Always consider a firm’s reputation, check its references and read its contract before requesting a quote. Contracts differ between companies and impact everything from tax deductions and residuals due at the end of the lease to the responsibility for servicing the equipment. Finally, select someone you trust. Your financing partner should provide funding and be committed to your success.

David Beckstead is Pacific Region sales manager for CB&T Equipment Finance. Reach him at (949) 457-0458 or david.beckstead@calbt.com.

Insights Banking & Finance is brought to you by California Bank & Trust

Published in Los Angeles

As summer begins, more of us will be taking some well-deserved vacation time, but business doesn’t grind to a halt just because you happen to be away from the office. That means more entrepreneurs and business executives will be relying on online and mobile banking tools to stay in touch with their business finances.

Given the need to access financial information in real time, what does the future hold for online and mobile banking? More importantly, how can these resources help business executives make better decisions for meeting their strategic goals — now and in the future?

Smart Business spoke with Susan Brown, senior vice president and Marketing Group manager at California Bank & Trust, about how online and mobile banking tools are helping executives not only access account information, but also provide sophisticated technologies for meeting complex business and treasury management needs.

Why has mobile banking become so important to business customers?

In today’s fast-paced business environment, you can’t afford to be out of touch with your finances. It’s become more essential than ever for entrepreneurs and their teams to have 24/7 access to a variety of business metrics, such as account balances, payables, receivables, cash on hand and more.

In the past, traditional online banking tools accessible via desktop PCs and laptops met these needs, but smartphones and tablets are now becoming preferred devices for accessing information. A recent report predicted that by 2014 smartphone shipments are likely to top 1 billion units, and that by next year sales of tablet devices will exceed sales of traditional laptops.

Data like this makes it clear that mobile devices are going to be key tools for business leaders to get more done in less time.

Has mobile overtaken online banking?

Mobile banking is not different from online banking — you’re just using a different device and tools to access information remotely. The more people rely on tablets and smartphones, the more mobile apps will grow in popularity. The most likely scenario for the near future is that most business users will adopt a hybrid approach, using traditional online banking tools in the office and mobile apps on the road.

Why is online banking expanding from transaction-oriented to customer-centric?

The best financial institutions are customer-centric. These banks focus squarely on strong relationships between their clients and business bankers. Clearly, customer-centric institutions want online and mobile banking resources and technologies to reflect and mirror those values.

Transactions are important, so of course online and mobile services need to support high-transaction volumes. However, the real value is banking experts helping clients make the best use of sophisticated tools to meet complex needs, such as cash management and fraud prevention. This is why a customer-centric approach will continue to be a focus.

Will the popularity of online and mobile banking impact the future of bank branches?

When online banking first emerged, many in the industry thought it might mark the end of branch banking. However, face-to-face contact is still important, especially in a business-banking context. Many transactions, such as those involving deposits and cash withdrawals, require a network of branches. There will be a gradual decrease in the number of branches, but branch banking isn’t going away anytime soon.

What online or mobile options are available?

Most people know they can pay bills online, check the status of payments and review balances, but there are other online tools that offer more sophisticated capabilities. For example, businesses can use advanced treasury and cash management solutions customized to meet highly specific needs.

What new capabilities under development could be used in the future?

Institutions are investing in user friendly and interactive websites, as well as introducing new apps that allow clients to service their banking needs from tools like mobile devices and iPads. As the capabilities of these devices grow and devices are introduced, banks will develop new, interactive ways to support their clients’ growing needs that complement the traditional avenues.

Susan Brown is senior vice president and Marketing Group manager at California Bank & Trust.

Mobile: To learn more about California Bank & Trust’s business mobile banking app, now optimized for iPads, visit www.calbanktrust.com.

Insights Banking & Finance is brought to you by California Bank & Trust

Published in Los Angeles