Companies with large capital needs often employ a commercial banking relationship that includes a syndicated bank loan — a commercial loan that is provided by multiple banks (a bank group), where one bank acts as the lead arranger and administrative agent for the bank group. A company’s bank group can be as small as two or three banks, or, depending on the size of its credit facilities, can be much larger to include dozens of banks.  Over the last 15 years, syndicated bank loans have become the dominant way for companies to finance their capital needs.

“Despite what you hear about banks not lending, 2011 was a record year for syndicated multi-bank loan financing, topping $1.8 trillion,” says Ron Majka, senior vice president and manager of loan syndications for FirstMerit Bank. “The syndicated loan market is very healthy and active, and local banks in Northeast Ohio are hungry to support healthy growing companies.”

Smart Business learned more from Majka about multi-bank loan syndications and how to tell if it could benefit your company.

What types of companies could benefit from considering a multi-bank loan syndication?

The need for a syndicated bank loan is often event-driven. Frequent triggering events include the financing of mergers and acquisitions (M&A), new construction associated with corporate expansions, large equipment purchases, or dividends to owners (referred to as leveraged recapitalizations). In addition to event-driven situations, the need for a syndicated bank loan sometimes can be more evolutionary. As companies reach a certain size, they may outgrow a singular relationship with one bank. Moving to a larger, syndicated multi-bank credit facility is a natural next step for these companies.

Why are loan syndications becoming so popular?

Multi-bank syndicated loans are popular because they are the most flexible and economic financing alternative available to companies.  Other methods of raising large amounts of capital include going public through the sale of stock, issuing bonds, or attracting investors through a private placement. Each of these options is much more expensive, and not nearly as standardized and flexible as bank loans. From a banking perspective, nearly every bank that is active in commercial lending is involved in some level of providing syndicated loans. Together, these factors contribute to the amount of multi-bank syndicated loans issued -— now exceeding $1 trillion per year.

How can loan syndication benefit a company?

Having an optimal credit facility is a crucial component to the long-term success of a company. A syndicated loan sets the platform for a company’s growth. A simple two-bank syndicated loan facility can be very easily expanded to accommodate increased loan amounts and additional banks, to complement a company’s growth needs. Another benefit of loan syndication is that a company can tailor a bank group that fits its specific corporate strategy and needs. For example, a Northeast Ohio company that is engaged in international business may choose a strong local agent bank that provides stable, trusted leadership. That agent bank might then add an international bank to the bank group to help provide overseas trade and banking needs for that company. Also, competition is always a good thing. Having multiple banks involved in competition is a way to make sure the client is always getting the best execution, and that its banking terms and structure are most favorable.

How can a company choose the right agent bank to lead the loan syndication?

It’s important to put a lot of thought into whom you are entrusting as your agent bank. Bigger isn’t always better, nor is it wise to adopt a cookie-cutter approach. You want an agent who understands your business, takes the time to fully comprehend your company’s strategy and growth plans, and then crafts a financing arrangement that helps you achieve those goals. Choose a bank where you will have an experienced group that is solely dedicated to structuring, leading, and administering multi-bank syndicated loans. Lastly, any successful relationship is a two-way street.  Make sure you are comfortable with your agent bank’s culture, strategy, leadership, health and stability. This relationship is very important.

How does the process of issuing a syndicated loan work?

It is typically a five- to eight-week process from start to finish. First, it involves choosing the right agent bank. Next, the company works with the agent bank to craft the right strategy to produce the kind of bank group it wants to achieve. For instance, you may have a number of questions to consider. Do you want international or local banks as part of your bank group?  Are you interested in banks that are active in or have expertise in your industry?  Should you just include those banks you are familiar with? Or, are there banks that you do not know that can add value to your bank group? Once you determine your optimal bank group, the agent bank will use its knowledge of the marketplace to approach and attract the right partners.

The process also includes the agent bank and the company working together to create materials that fully describe the company’s business, philosophy, industry and corporate plans. That package of material, called a confidential information memorandum, is a 25- to 100-page document that includes a complete assessment of the company and its operations. Once everything is set, the opportunity is launched to the bank market and the agent bank works with the targeted banks and the company to answer questions and move those banks through their credit approvals. This process ultimately culminates in a successful closing and funding of the company’s multi-bank syndicated credit facility.

Ron Majka is a senior vice president and manager, loan syndications for FirstMerit Bank. Reach him at (330) 996-6446 or ron.majka@firstmerit.com.

Published in Akron/Canton
Thursday, 19 January 2012 09:10

Pain-free payroll

Business owners have many choices when it comes to how to pay their employees. Some handle the payroll process internally, and spend a great deal of time managing all the paperwork of federal and state taxes, Social Security, Medicare, union dues, 401(k) contributions and more.

Some use payroll software, which allows accurate recordkeeping, but often has a long learning curve. Some hire a local accountant, or a professional tax lawyer/CPA.

Others outsource these tasks to companies that provide automated payroll services.

Smart Business spoke with Jim Geuther, Director of Business Banking at FirstMerit Bank, about what services to expect from payroll providers and how to ensure you choose the right one for your company.

Why is it important for a business to choose the right payroll provider?

Payroll appears to be pretty simple on the surface — employers calculate employees’ gross earnings, they deduct the respective payroll taxes and other ancillary deductions such as insurance or 401(k), they send the government their share and produce a payment for the net amount to the employee.

Payroll is actually more complicated than this. There are bonuses, sick time, overtime and other factors that can change from pay period to pay period, affecting compensation. In addition, federal, state and local taxes are always changing and, depending on the complexity of a payroll, the time it takes to keep track of all of these changes can turn it into a daunting task.

If employers aren’t up to date on payroll tax requirements such as rates or frequency of payments and filings and they miss a deadline or pay an incorrect amount, they can be fined. In addition, these errors can lead to an inaccurate payroll and, ultimately, unhappy employees. That’s why it is so important to do it correctly.

How can an outsourced payroll provider benefit a business?

With payroll being a much more complicated task than it appears, businesses need someone they can count on for more than just paycheck calculations. Entering all that data and pushing out a check is the easy part. It is everything else after the fact that becomes difficult.

FirstMerit’s Business Online Payroll, for example, provides payroll tax payments and filings as well as 100 percent liability that payroll taxes will be paid and filed accurately and on time.

Offering direct deposit saves time and money for the employer and employee, because there are no checks or check stubs to print and the employees don’t make an extra trip to the bank on payday, so their time is spent focusing on business productivity.

With most in-house accounting products there are additional costs for keeping the technology up to date and tax tables current. With an outsourced payroll provider, there is no software to purchase, no need to have personnel maintain it and no ongoing fees to keep current.

Having an employee do in-house payroll presents a risk of knowledge walking out the door if that employee leaves the company. There is no need to have an ‘expert’ in house with an automated payroll service.

How can business owners determine which payroll provider would be the right fit for their company?

There are many factors that go into determining the best solution when it comes to payroll. The five most important factors are reputation, customer service, ease of use, ability to grow with the company and, of course, cost.

Businesses need to look at the complete picture when deciding on a payroll provider. Working with a small local payroll provider can present issues with out-of-state calculations and few, if any, offer any liability or guarantee with their service. However, working with a payroll provider that has a proven track record of success and growth offers peace of mind to the business owner.

Businesses should look for a payroll provider that has been recognized and awarded for the customer care it provides and can answer questions and provide solutions to problems. Also, look for a payroll service that provides live support available at one number, eliminating all the shuffling around and waiting for a call back.

With the many options available for payroll services, ease of use is one of the most important factors for business owners. FirstMerit provides an award-winning online product that allows business owners to run their payroll from any Internet-capable device. Employers simply log in to their online account, enter hours and other specific payroll information, preview the payroll to ensure data is correct and press ‘approve’ — everything else is taken care of. Processing payroll this way takes about five minutes.

Another important factor to look at is whether the provider can grow with the business’s future needs. Finally, businesses should consider the cost of working with a payroll provider. One of the major advantages of working with an all-inclusive provider is that there are no hidden costs for direct deposit, reports and payroll tax payments and filings. Our online technology significantly cuts operational costs, and those savings are passed on to our customers. Some customers pay half the cost charged by larger companies, accountants and CPAs and most local providers.

Jim Geuther is Director of Business Banking at FirstMerit Bank. Reach him at (216) 694-5683 or jim.geuther@firstmerit.com.

Published in Chicago
Tuesday, 20 December 2011 13:55

A 3F rated environment

You may recall that in the Selective Service’s armed forces draft ratings, 4F meant physically unacceptable for military service. I doubt that I would get much argument with my contention that 2011 is finishing up as a 4F year for the economy and investors! In terms of explaining what has happened, I will cut one 'F' from the list and concentrate on 3F’s: fears, fundamentals and feedback loops.

Economic cycles are heavily influenced by business and consumer confidence levels. If my personal situation today is satisfactory and I am confident tomorrow will look pretty much like today, I am more likely to invest and consume. For the business manager, that means investing in buildings, equipment, inventories and employees. For the consumer, that means spending on goods and services. This confidence/optimism (absence of fear) shows up as growth in fundamental measures such as capital investment, industrial production and incomes which are driving factors for GDP growth. As fears abate and fundamentals improve, a positive feedback loop forms and strengthens.

We believed a positive feedback loop was in place a year ago. It wasn’t particularly strong, but it appeared durable. So how did it backslide into this 4F year? A quick review shows a confluence of events beginning with the extremely harsh winter experienced in the Northern Hemisphere that not only truncated the positive loop, but reversed it into a negative feedback loop. Japan’s tsunami/earthquake caused havoc for the just-in-time supply chain; the Arab Spring revolutions caused a spike in energy costs; Europe’s banking system/sovereign debt crisis re-emerged as a threat to the financial system and to European economies; the sharply negative revisions to U.S. GDP revived double-dip recession fears; and confidence was further damaged by the fiasco surrounding the U.S. debt ceiling and the S&P downgrade of U.S. government debt. The sharp selloff and continued extreme volatility in global equity markets since this summer seem to confirm the notion that more trouble lies ahead.

Small wonder that consumers, businesses and investors became fearful! And let’s face it, we’ve already had two experiences in this young century when the wise choice between “fight or flight” was clearly the latter. But what about now — how do we rate the strength of the 3F’s?

We will start with fundamentals. Despite skating even closer to the edge this year than last year, we have avoided falling into a double-dip recession. Although we were concerned to see four of our 10 Recession Checklist Signals toggle on this year, economic data has steadily improved since late summer. Jobs are growing, incomes are growing, debt is falling, industrial production is growing and inventories are lean. Early signs point to a solid Christmas season for retailers. Even housing statistics support a modestly positive perspective.

The composition of Q3 GDP was encouraging, even if the growth rate was only 2.5 percent. The largest contributors to GDP were business and consumer spending and, while inventory reductions hurt Q3 GDP, rebuilding them supports higher production levels to meet pent-up demand. The fundamentals for the financial markets are also moderately positive. Falling inflation and a Fed that is determined to suppress interest rates means bond prices should be stable. Although earnings growth is slowing, it is positive and the S&P 500 p/e ratio is an undemanding 12x 2012 estimates.

Unfortunately, we cannot reject the fears, as the decades of hyper-growth in credit require continued deleveraging in coming years. The global GDP growth rate will continue to be impacted by this trend. The fear of the GDP impact of government austerity and tax increases is very rational. Even when (OK, if) the Europeans give in and emulate the actions of the U.S. (bailouts and quantitative easing), it is not clear they could avoid recession in 2012. As large trading partners for the U.S., this would hurt our fundamentals.

I’ll end this piece by noting that it is difficult (impossible?) to predict the outcome of the fears vs. fundamentals debate for 2012. As to the third 'F,' there seems to be no feedback loop at all currently. We will follow up with further thoughts on this topic as we present our 2012 Economic and Financial Market Outlooks in coming weeks.

The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank, N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal or tax advice. All opinions are reflective of judgments made on the original date of publication and do not constitute a guarantee of present or future financial market conditions.

Have a question about investments or investment services? Contact Bob Leggett, Chief Investment Officer, FirstMerit Wealth Management Services, at robert.leggett@firstmerit.com.

Published in Chicago
Wednesday, 30 November 2011 19:01

How to choose a payroll provider

Business owners have many choices when it comes to how to pay their employees. Some handle the payroll process internally, and spend a great deal of time managing all the paperwork of federal and state taxes, Social Security, Medicare, union dues, 401(k) contributions and more.

Some use payroll software, which allows accurate recordkeeping, but often has a long learning curve. Some hire a local accountant, or a professional tax lawyer/CPA.

Others outsource these tasks to companies that provide automated payroll services.

Smart Business spoke with Jim Geuther, Director of Business Banking at FirstMerit Bank, about what services to expect from payroll providers and how to ensure you choose the right one for your company.

Why is it important for a business to choose the right payroll provider?

Payroll appears to be pretty simple on the surface — employers calculate employees’ gross earnings, they deduct the respective payroll taxes and other ancillary deductions such as insurance or 401(k), they send the government their share and produce a payment for the net amount to the employee.

Payroll is actually more complicated than this. There are bonuses, sick time, overtime and other factors that can change from pay period to pay period, affecting compensation. In addition, federal, state and local taxes are always changing and, depending on the complexity of a payroll, the time it takes to keep track of all of these changes can turn it into a daunting task.

If employers aren’t up to date on payroll tax requirements such as rates or frequency of payments and filings and they miss a deadline or pay an incorrect amount, they can be fined. In addition, these errors can lead to an inaccurate payroll and, ultimately, unhappy employees. That’s why it is so important to do it correctly.

How can an outsourced payroll provider benefit a business?

With payroll being a much more complicated task than it appears, businesses need someone they can count on for more than just paycheck calculations. Entering all that data and pushing out a check is the easy part. It is everything else after the fact that becomes difficult.

FirstMerit’s Business Online Payroll, for example, provides payroll tax payments and filings as well as 100 percent liability that payroll taxes will be paid and filed accurately and on time.

Offering direct deposit saves time and money for the employer and employee, because there are no checks or check stubs to print and the employees don’t make an extra trip to the bank on payday, so their time is spent focusing on business productivity.

With most in-house accounting products there are additional costs for keeping the technology up to date and tax tables current. With an outsourced payroll provider, there is no software to purchase, no need to have personnel maintain it and no ongoing fees to keep current.

Having an employee do in-house payroll presents a risk of knowledge walking out the door if that employee leaves the company. There is no need to have an ‘expert’ in house with an automated payroll service.

How can business owners determine which payroll provider would be the right fit for their company?

There are many factors that go into determining the best solution when it comes to payroll. The five most important factors are reputation, customer service, ease of use, ability to grow with the company and, of course, cost.

Businesses need to look at the complete picture when deciding on a payroll provider. Working with a small local payroll provider can present issues with out-of-state calculations and few, if any, offer any liability or guarantee with their service. However, working with a payroll provider that has a proven track record of success and growth offers peace of mind to the business owner.

Businesses should look for a payroll provider that has been recognized and awarded for the customer care it provides and can answer questions and provide solutions to problems. Also, look for a payroll service that provides live support available at one number, eliminating all the shuffling around and waiting for a call back.

With the many options available for payroll services, ease of use is one of the most important factors for business owners. FirstMerit provides an award-winning online product that allows business owners to run their payroll from any Internet-capable device. Employers simply log in to their online account, enter hours and other specific payroll information, preview the payroll to ensure data is correct and press ‘approve’ — everything else is taken care of. Processing payroll this way takes about five minutes.

Another important factor to look at is whether the provider can grow with the business’s future needs. Finally, businesses should consider the cost of working with a payroll provider. One of the major advantages of working with an all-inclusive provider is that there are no hidden costs for direct deposit, reports and payroll tax payments and filings. Our online technology significantly cuts operational costs, and those savings are passed on to our customers. Some customers pay half the cost charged by larger companies, accountants and CPAs and most local providers.

Jim Geuther is Director of Business Banking at FirstMerit Bank. Reach him at (216) 694-5683 or jim.geuther@firstmerit.com.

Published in Akron/Canton

Volatility has been crazy! The S&P 500 third quarter total return was -13.9% followed by +10.9% for October and now back to declines in November. The Russell 2000 index of smaller stocks returned -21.9% and +15.1% for Oct-Nov. Volatility also reigned in the fundamental world during Q3, as economists cut their +2.5% 2011 U.S. GDP estimates to +1.0% with higher odds of a double-dip recession before reversing to 2H 2011 growth of 2% and higher odds of sustained economic expansion through 2012. One factor in the volatility was the debt ceiling crisis, which was wholly unnecessary but extremely alarming as an indicator of governmental dysfunction. The global outlook was likewise far from stable, as the sovereign debt/banking system crisis in Europe added to the craziness in the financial markets.

I wish I could say this had no impact on the Market Meter, but that was not the case. The volatility of the markets, the economy and politicians translated into numerous changes in our Market Meter inputs. By early October as the volatility was nearing its apex, the Meter had plunged to -2 from +5 in May! This was by far the steepest dive in the history of the Market Meter, but with two points regained this month, it popped back up to 0. Looking into the history books again, we see the quickest roundtrip from bearish to bullish took place in the spring/summer of 2009, which by coincidence was the last time the world didn’t quite come to an end.

In early May, all Market Meter inputs were rated +1 (except the Major Trend which was neutral). The S&P had just reached a new high for the 2009-11 rally at 1370. We were projecting +3.0% to +3.5% 2011 GDP, but were concerned about the negative impact of the severe winter weather, Arab Spring-related oil price spike, and the Japanese earthquake shock to the manufacturing supply chain. We proved to be overly optimistic in our expectation that these were transitory and would reverse by late summer. As we awaited signs of improved growth, the issues discussed above combined to instead cause a manic-depression that captured consumers, businesses and investors alike.

Only two Market Meter inputs were unchanged over the May-November period. The good news is that the Federal Reserve remains totally committed to averting recession/deflation so it is unchanged at +1. The not-so-good news is that the Major Trend (secular trends lasting years or even decades) held at a weak 0 rating. As we have stated many times, the bursting of the credit bubble engendered deleveraging headwinds that may keep risk aversion at the forefront of our investment strategies for years to come.

We’ve been bullish for two years which helped us to earn positive results for our clients, but with the Major Trend and inputs from external research sources flashing longer term caution signals, we viewed the remaining Market Meter inputs with a wary eye. Consequently, as economic forecast and earnings estimate revisions gave warnings of turning negative, we downgraded Economy from +1 to -1 and Valuation from +1 to 0. No such bias was required for the Technical inputs as the selloff quickly cut them to -1. The net result was the +5 to -2 overall drop and we followed the Meter by reducing our exposure to more-cyclical (risk-on) equities and raising cash reserves in client accounts.

Our Autumn Market Message was titled “Whistling Past the Graveyard” and investors suddenly decided to do just that in October. Recession fears were mollified by the surprising +2.5% Q3 GDP report and progress was made on the European debt crisis. The early-October “test” of the August lows was successful, so Short Term Technical flipped from -1 to +1 and that two point swing returned the Market Meter to 0. Thus, for the first time in nearly a year, we increased our equity market exposure by redeploying a portion of the cash reserves raised this spring/summer. Volatility needs to subside for us to see further improvement in the Market Meter, but the European crisis and Congress’s Super Committee failure have kept volatility high.

All of these factors must be taken into account as we develop our economic outlook and investment strategies for 2012. Potential shifts toward more defensive or more aggressive tactics will be determined by the outcomes of that effort. For now, we are maintaining a relatively neutral stance toward the markets.

The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank, N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal or tax advice. All opinions are reflective of judgments made on the original date of publication and do not constitute a guarantee of present or future financial market conditions.

Have a question about investments or investment services? Contact Bob Leggett, Chief Investment Officer, FirstMerit Wealth Management Services, at robert.leggett@firstmerit.com.

Published in Chicago

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?

Sean Richardson, NorthCoast president and CEO of FirstMerit Bank, says the idea of a fiscal — rather than physical — checkup is not a new one. However, it is typically overlooked in the rush to meet other deadlines.

“Many business owners get regular medical or dental checkups,” Richardson 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 Richardson 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 of 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 should be included in your team.

Is it more important to have the right banker or right bank?

Both are extremely important. 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 combination delivers a relationship that is valued and beneficial. Having a strong relationship with a bank allows a company to take advantage of opportunities as they arise, especially when there are periodic checkups to keep the relationship strong and healthy.

Sean Richardson is NorthCoast president and CEO of FirstMerit Bank. Reach him at Sean.Richardson@firstmerit.com or (216) 802-6565.

Published in Cleveland

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?

Nicholas Browning, president and CEO of FirstMerit Bank’s Akron region, says the idea of a fiscal — rather than physical — checkup is not a new one. However, it is typically overlooked in the rush to meet other deadlines.

“Many business owners get regular medical or dental checkups,” Browning 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 Browning 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 of 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 should be included in your team.

Is it more important to have the right banker or right bank?

Both are extremely important. 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 combination delivers a relationship that is valued and beneficial. Having a strong relationship with a bank allows a company to take advantage of opportunities as they arise, especially when there are periodic checkups to keep the relationship strong and healthy.

Nicholas Browning is president and CEO of FirstMerit Bank’s Akron region. Reach him at nicholas.browning@firstmerit.com or (330) 384-7807.

Published in Akron/Canton

Chalk it up to simple economic realities, but a capital expenditure requires quite a bit of forethought these days. This makes finding the best equipment financing for your business more important than ever, says Tim Evans, president of FirstMerit Equipment Finance.

“We tend to keep equipment around a lot longer than we have in the past,” Evans says. “It’s important that when you get that initial piece of equipment and you make your decision on financing that you are thinking long term, not just short term, and that you understand the value of that equipment to your business.”

Smart Business spoke with Evans about how to set up the best equipment finance agreement for your business, and what not to do when structuring the agreement.

What are some issues companies should consider when financing equipment?

Companies should think through the true economic life of the equipment. How long will you be able to use it in its current application? Can it be converted to some other capacity to lengthen the life of the equipment longer than it would normally be? Are there upgrades or refurbishments that could extend the life of the equipment?

How can companies determine whether financing or purchasing a piece of equipment is the right choice?

You can’t be short-sighted in how you use your capital today. We’re coming out of a recession, and many customers are asking for sale leasebacks because, prior to the economic slowdown, they tied up their capital in their equipment purchases. When you run into a down cycle like we’re in today, you need working capital to run your business. But when you’ve tied it up in your equipment, you’re out of luck.

Equipment financing and leasing is the way to go to avoid a shortage in working capital. If you have the ability to finance your equipment and keep working capital in your business, that gives you more flexibility. It’s very difficult to structure a sale leaseback 12 to 18 months after you paid cash for the equipment, because the equipment depreciates and its value will be a lot less at that point in time.

What should business owners look for when setting up financing agreements for leased or purchased equipment?

One of the biggest misnomers in the industry is to look for the absolute lowest rate for your equipment financing. Money is money, but when you are looking for equipment financing, you want to work with a partner who understands your business, and who understands the necessity of being able to do something different down the road if your situation changes. You need flexibility.

Often, companies get offered a below-market rate that looks great at the time they signed the deal. But what if they are two years into their five-year deal and they need to make a modification? When you go into that low of a rate structure, many times the flexibility just isn’t there because of the tight requirements in order to achieve the goals that the lessor established in the deal.

At FirstMerit, we look at it as an overall relationship. Our goal is to give you the ability to work within your business frame to make any necessary changes in how you are doing business if your situation changes.

You should look to work with a lessor that is flexible. If you just go with whoever is offering the lowest rate on the street, you’ll find that service and price don’t always go hand in hand. We will always be competitive, but we also pride ourselves on being a good service partner.

What are some typical equipment financing mistakes that companies make, and how can they be avoided?

The biggest mistake companies make is they aim for the lowest possible payment. Typically, that means you get the longest possible term, which can create a lot of issues down the road.

You might have an asset that won’t be of any use to you after five years. But you have a targeted payment in mind, and because of that you need an seven-year term. The structure of the lease, the potential buyout on the back end of the lease, whether it is a fair market value lease or a conditional sale — those are all issues you want to be aware of, because they are going to impact what happens down the road when you decide whether you want to buy that equipment or return it.

Another key point: make sure you understand the tax ramifications of your transaction. It may be beneficial to your company to pass any bonus depreciation on to the lessor (the bank) and do a true lease, because you could receive a lower payment structure. In this case, the lessor would take the depreciation benefits and then pass those benefits back to you in the form of a lower rate.

Always ask questions and make sure you read your documentation — especially the fine print. You don’t want any surprises down the road so make sure you read your documents thoroughly.

How can business owners determine whether an equipment lease being offered by their bank is a good one for their business?

There are three major components to consider. First, how long are you keeping the equipment? Can you utilize the tax benefits? If cash flow is an issue, is 100 percent financing more attractive than a conventional term loan where a 20 percent down payment may be required?

Tim Evans is president of FirstMerit Equipment Finance. Reach him at (330) 384-7429 or Tim.Evans@firstmerit.com.

Published in Akron/Canton
Friday, 30 September 2011 20:01

How to take advantage of trade cycle financing

Interest rates vary throughout the world, and companies that do business internationally can use this knowledge to their advantage.

“Buyers and sellers really need to know the interest rates in the country of their customer and the impact on their trading partner’s cost of doing business,” says Craig Schurr, a senior vice president and the International Banking Division Manager with FirstMerit Bank. “As cost of finance directly impacts cost of purchase,  sellers really need to know their customer’s cost of borrowing and if financing is available to them. When armed with that information, you can create a partnership with the companies with which you do business  and use the overall financial concepts of the trade cycle to benefit one another.”

Smart Business learned more from Schurr about how companies can take advantage of trade cycle financing in international business.

How does trade cycle financing work for importers and exporters?

From the moment an exporter receives an order until the exporter gets paid for the order, someone is using cash to finance that period of time. That is the concept of the financial trade cycle. Everyone knows the old saying that time is money. The trade cycle is all about time, so it is really all about money, too.

If I get an order as a seller on the first of the month and I don’t get paid until the 30th, I’m financing that 30 days with cash that I have in my company, and I know intuitively I’ll pay some interest for that money (because money is not free). Or if my company is short on cash, I may borrow from the bank.

So there is a financial impact from the moment the buyer places the order with the seller until the seller gets paid. And once the buyer pays the seller, the buyer begins its own financial trade cycle.

For instance, imagine I run a steel company. I buy coal from a coal company to make my steel. My financial trade cycle lasts until the steel is manufactured, sold, and I get paid. Then I can consider my trade cycle for the coal complete.

While financial trade cycles exist in all buyer seller business they are more protracted for companies doing business internationally and much more financially impactful. So to summarize, an exporter’s trade cycle starts the moment it gets an order and it ends when it gets paid. For importers, the trade cycle begins the moment it pays and lasts until it can convert what the seller sold it into something that makes it money.

How can importers and exporters benefit from the trade cycle?

An exporter needs to finance its trade cycle, and needs to take into account what its buyer is facing. Let’s focus on an exporter in the U.S. selling to India, where interest rates just went up and are much higher than in the U.S. As an example, a U.S. company can currently borrow working capital from the bank at a prime interest rate (currently 3.5 percent)  to manufacture goods. However, the cost of borrowing for the company in India could be upwards of 15 percent.

The U.S. company has a 3.5 percent cost of finance in its trade cycle until the company in India pays for its purchase. Once this happens, the purchasing company has a 15 percent cost of funds to take into consideration until it converts its purchase into something that generates cash to complete its trade cycle.

If you, as the seller, don’t want to incur that 3.5 percent interest rate, you could ask the buyer for cash in advance and you have no cost of finance; your customer absorbs all of it. However, that may be an unprofitable scenario for the importer as now it is financing your trade cycle with expensive 15 percent cost of funds. If I can borrow at 3.5 percent as the exporter, and I know my buyer is paying 15 percent, I wouldn’t ask for cash in advance because it wouldn’t be very customer-friendly. Instead, I may work with the buyer so we could somehow employ my 3.5 percent to finance our trade cycle. That is one way buyers and sellers who work together can take advantage of the trade cycle.

Now let’s say I am a U.S. importer, and I’m buying from India and my cost of finance remains 3.5 percent and the seller’s cost is 15 percent. I know fundamentally that if they’re doing the same thing I would do as a seller, they’re embedding the cost of their financing in their price. I intuitively know the price I am being quoted by the seller includes a 15 percent cost of financing. So I may suggest to the seller that, if I pay with cash in advance, I should get a discount on the price because I’ve saved the seller the need to borrow from the bank.

Both buyers and sellers stand to benefit from understanding how different interest rates impact trade cycle financing. If you can work with your trading partners to understand the borrowing rates of the company you’re doing business with, you can work within the trade cycle as a business partner, instead of just in a simple buyer/seller relationship.

Where can companies find international interest rates?

There are at least two places companies can look. Visit the foreign currency exchange market website (www.FXstreet.com/fundamental/interest-rates-table/) for a world interest rate table, which has the current interest rates of central banks (what banks charge other banks), and also has a summary of 23 major countries listed by region.

Another interesting and informative source is the Central Intelligence Agency (www.CIA.gov). The CIA collects extremely useful business data. There is information available for businesses in every country in the world, including the rate at which companies borrow within each country. Companies in the U.S. should take advantage of these resources.

Craig Schurr is a senior vice president and international banking division manager with FirstMerit Bank. Reach him at (330) 384-7325 or craig.schurr@firstmerit.com.

Published in Akron/Canton
Wednesday, 17 August 2011 10:44

Obtaining and taking advantage of portability

“Portability” became part of the federal estate tax law in 2010, and it is a welcome addition to the tools which estate planners have.

Historically in estate planning, a husband and wife would each have a revocable trust and would then divide their assets between themselves as equally as possible. In this manner, no matter which spouse pre-deceased the other, the maximum estate tax savings would be assured, says Jim Roseman, Vice President and Business Development Officer of FirstMerit Wealth Management Services.

All too often the assets could not be readily divided, as they included shares in a professional corporation or interests in a retirement plan, and if the spouse with fewer assets pre-deceased the other, estate tax savings could not be fully realized.

Portability treats a husband and wife as a unit, so if one estate does not fully use the estate tax exemption, the unused balance is available for the estate of the surviving spouse. With the current tax exemption of $5 million per tax payer, portability assures that the full $10 million would be available over both estates.

There are some cautions. The current law is only effective until December 31, 2012.  Unless Congress extends the law, portability will cease. It also still makes sense for each spouse to have a revocable trust and to attempt a division of assets. This way each spouse has considerable control over where their assets go, and a properly drawn trust will protect property from state estate taxes, a surviving spouse’s creditors, a second spouse etc. In addition, if the surviving spouse remarries, the unused exemption is forfeited.

In order to properly obtain portability, it will be necessary for both estates to file a federal estate tax return, even if the size of one estate would not normal require a filing. This filing serves to record the amount of the unused exemption still available.

Consideration is also being given to what might be appropriate in pre-nuptial agreements regarding the use of portability.

It is, therefore, very important for your advisors and potential executors, and trustees to understand what your estate plan is intended to accomplish and written authorizations and/or direction regarding portability and what needs to be done to accomplish it.

FirstMerit’s Wealth Management professionals would be pleased to discuss portability and your estate plan with you and work with your legal and tax advisors to accomplish your goals.

The contents of this article are meant for information purposes only and should not be relied upon as legal advice. The facts and circumstances unique to each situation may affect the legal and financial analysis as applicable to that situation. The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal, or tax advice. All opinions are reflective of judgments made on the original date of publication.

Jim Roseman is the Vice President and Business Development Officer of FirstMerit Wealth Management Services.

Published in Chicago
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