Five ways to guard your privacy against security breaches

This year’s IRS breach in which a multi-step authentication process, including several personal verification questions, was bypassed to access the private information from 100,000 tax accounts should serve as a clear reminder to take many steps to guard our online privacy. But protection against data breaches such as these requires more than just regularly changing passwords.

“It’s important for employers and employees to be educated on safety through annual courses and weekly tips,” says Karen Sengelmann, head of retail at Fifth Third Bank.

She says it’s important to ensure employees are demonstrating secure behaviors, including forwarding suspicious emails to their company’s internal security team for evaluation before clicking on a link or downloading an attachment.

“I worry that breaches are becoming more common. And because of that, people are becoming desensitized to them,” Sengelmann says. “They may no longer pay attention and instead just tune out the warnings.”

Smart Business spoke with Sengelmann about the five things businesses and employees should do in order to lessen the chances of a security breach.

What are the five steps businesses should take to ensure that they’re insulated from an online security breach?

When it comes to protecting sensitive business and personal information, including bank accounts, consider the following advice:

  • Treat mobile banking as if it were a credit card. Mobile banking is convenient, but employees and employers often forget that account information needs to be treated with the same level of security as a credit card. For added protection, password protect mobile phones and never send account numbers through text messaging.
  • Don’t click on that link. You’ve likely heard it before, yet the reason phishing continues to happen is because it still works. There is the sentiment by some that it won’t happen to them. But those who execute phishing attacks continue to get more sophisticated. They often change one letter of a popular website so that people scanning their email might not double check. Always hover over a hyperlink to see the URL address to confirm it will take you to the site you were expecting to go to.
  • Use strong passwords. Don’t use words that can be easily discovered, such as your dog’s name or your children’s names, or something generic such as password1234. Use different passwords on different sites. Consider using a phrase, sometimes called a pass phrase, in cases where you can use longer passwords.
  • Know that security questions aren’t really secure. With a little searching on social media, criminals can easily gather all the personal information that they need to know about you to answer and bypass common personal verification questions — much like was done in the IRS breach. To be very cautions would be to forgo using social media all together. But if that’s not desirable, or not possible, just be aware that the information you submit to a social media site, even if it’s not made public, may not be secure. And the more you share, the more vulnerable you become.
  • Monitor your credit on a regular basis. You are entitled to one free credit report from each of the three credit reporting companies each year. Take advantage of that. Also, monitor your bank accounts regularly for any irregular activity. If you see something out of the ordinary, don’t hesitate. Report it to your financial institution immediately.

Fifth Third Bank. Member FDIC.


Insights Banking & Finance is brought to you by Fifth Third Bank

Enabling businesses to provide easier, faster payment solutions

Recent innovations in the payments industry have extended across the globe. New transaction models continue to emerge, and traditional payment methods — like credit cards, checks and cash — are being joined by a generation of mobile-friendly methods.

Smart Business spoke with Thomas C. Engler, vice president of the Western Pennsylvania Middle Market at Chase Commercial Banking, about how to make this transformation work for your business.

What are some recent developments driving this expanding mobile payments environment?

Global demographics are playing a big part in accelerating the growth of mobile. Millennials, many of who hold midlevel positions in the workforce, have been at the forefront of mobile for over a decade now. This group of tech-savvy professionals — which will only continue to grow as boomers retire — is far more likely to abandon cash payments in favor of mobile transactions than previous generations. And it’s a likely assumption that over the next five to 10 years, mobile may become the norm, so getting into the market early could have distinct advantages for your company.

Another reason mobile payments are skyrocketing is the increase in consumers, both tech-savvy millennials and emerging-market professionals, who have no formal, established banking relationships but who do have phones.

This appetite for mobile payments, as well as increasing global buying preferences, may also lead to further opportunities for high-margin payments products for companies who get on board with early adopters of mobile payment platforms.

Regulatory and industry initiatives also play a role in transforming the mobile payments space. What are a few you think businesses should be aware of?

One of the key market-transformation trends is risk reduction. Basel III is a great example of this. It monitors individual bank health and coordinates with the interlinked network of international banks to act quickly and decisively when individual or systematic weaknesses come to light. Further, capital rules for foreign banks in the U.S. — as well as regulations on virtual currency, bank payment obligations, European mobile and Internet payment security initiatives and the U.S. Foreign Account Tax Compliance Act — all work to reduce risk throughout the global mobile industry.

Standardization is another trend. A lack of industry agreement on how to best implement the system, and a marketplace riddled with different technology types and business models have made regulation a challenge. Now though, global initiatives, including cybersecurity and data privacy directives, as well as access to clearing regulations, are helping to drive standardization.

Along with standardization, competition and transparency continue to be key transformation trends in mobile. Regulations and initiatives in this area include Prepaid Payment Products Regulations in North America, payments governance and pressure on card interchange fees.

And as the market share for mobile grows, innovation continues to lie at the industry’s heart. Key initiatives and regulations include the UAE’s Mobile Wallet and the EU’s updated Payment Services Directive, e-Invoicing, e-Government and Current Account Switch service.

What’s the ultimate takeaway for businesses? How should they prepare for this mobile-centric payments future?

While mobile is called the ‘payment model of the future,’ really, the future is already here.

This is great news for those who are considering — or already utilizing — mobile payment solutions for clients and vendors, because mobile is a high-margin payment process that offers a great return.

Contactless transactions take less time than cash payments, and the average customer also spends more on mobile as well, which means there is more time and opportunity for transactions to take place.

For multinational companies doing business in these markets, it’s clear that mobile is the key to future growth and additional market share.

Insights Banking & Finance is brought to you by Chase

Allow your bank to be a partner as you plot the next step for your business

Business owners that provide their bank with a seat at the table as key company decisions are being made often realize significant benefits from the closer working relationship.

“When you allow your banker to be part of the conversation and to have access to other key advisers such as your accountant, your bookkeeper and your attorney, you can cut out a lot of the time it takes to get things moving,” says Sean M. Ulik, vice president and business development officer at Consumers National Bank.

The process of securing a loan to purchase new equipment, expand your business or launch a new real estate development takes time. A number of things need to happen before the bank can provide the funds you’ve requested.

“Your banker is the primary conduit between your business and the people at the bank who will ultimately make the decision on whether to approve your loan,” Ulik says. “If you can build a strong partnership with that person or others you work with at your bank, it can only help as your company pursues its goals.”

Smart Business spoke with Ulik about how building a stronger relationship with your bank can help your business secure a loan.

What are some common mistakes companies make when seeking a loan?

One common mistake is to not have a clear understanding of your needs relative to the bank’s ability to support those needs, which can be the result of previous banking relationships that did not have a high level of engagement between the two parties. It’s through these conversations that you learn how different financing options work, discerning which ones make the most sense for your business versus those that are less of a fit for your needs.

For instance, when a company secures a line of credit, it’s meant to be used for working capital and should be turned over (paid down) consistently. If you’re only paying the interest on the debt and using it more as a revolving loan than a line of credit, you may find it difficult to secure additional financing in the future. It’s that type of scenario that your bank can help you avoid.

Another mistake companies often make is an unwillingness to share sensitive information with their bank. Your banker is in the best position to be an advocate for your company and help you secure the funds you need. If you trust your bank, you shouldn’t have a problem sharing data that can only help in the effort to secure your loan.

If you have had challenges securing a loan in the past due to problems in your company, but have since rectified those concerns, your banker can back you up and explain why your company is now worthy of the funding support.

What matters most to banks in today’s economy?

The 5 C’s of Credit that lenders considered when making loan decisions had always been: character, capacity, capital, collateral and conditions. That has changed a bit in the last eight years. It’s now: cash flow, cash flow, cash flow, collateral and credit. Character is still a consideration, but cash flow really drives your worthiness for a loan. That’s not just for your business, but on the personal side as well since they often can affect each other. This is especially true if you’re someone who owns 100 percent of your business.

How should you prepare for a meeting with your bank?

Make sure you have a solid plan in place to discuss with your bank. Be familiar with the project you’re working on and how the funding you’re seeking will be used.

If this is the first time you’ve worked with this bank, it’s always good to get at least three years of tax returns for the business and for any guarantor or owner that has at least a 20 percent stake in the company, along with personal financial statements.

You should also have the most recent profit-and-loss statement and if you’re a larger company, have quarterly statements that reflect how your company is performing so far this year.

If you’re a smaller company, in addition to your bank, you should take advantage of small business development centers. These are often staffed by former bankers who can provide expertise free of charge and can help you put together a solid package.

Insights Banking & Finance is brought to you by Consumers National Bank


Be clear about your company’s needs before pursuing a new line of credit

One of the keys to securing an appropriate line of credit for your business is being clear about the problem you’re trying to solve, says Kelly Cook, senior vice president, Technology Banking Group at Bridge Bank.

“Are you trying to fill a cash flow gap between when you invoice for your product or service and when you actually get paid by the customer?” Cook says.

“Or are you trying to solve another problem in your business where you might be looking for additional cash to hire new salespeople or more operations team members. Those represent different types of cash needs that may require a term loan or even an equity investment.”

Clarity of purpose gives your bank or lender a solid starting point to help you find the right solution for your financing need. It also helps you avoid getting the wrong facility in place that could make it harder to obtain credit in the future.

“The more informed your bank or lender is with regard to the health of your business, your needs and your future plans, the better they can help you access additional borrowing capacity or financing to work out of a troubled situation,” Cook says.

Smart Business spoke with Cook about how to determine the appropriate line of credit for your business.

What are the best uses for a line of credit?

A typical line of credit is a working capital, revolving facility used to finance a short-term asset such as accounts receivable or inventory.

This differs from a longer term, more permanent type of financing like a term loan or equity that might be used to finance an asset with a longer life such as a new office or an increase in staffing. You want the type of financing to match the type of cash needed in the business.

What should you consider before pursuing a new line of credit?

First off, be sure that you clearly outline any existing debt or credit facilities for your prospective lender. Fully disclose any existing leverage, either through a bank loan, a finance company, or any other note or convertible note.

Your existing debt profile will have a strong influence on what a new lender can structure for your business. Depending on what you are trying to achieve, it may make sense to pay off the existing credit facility with a new one.

Where your business is in its life cycle is another factor which could affect the structure of your loan and the type of line of credit you can obtain. If your business is established and growing, you’re likely to get more favorable terms with a credit facility that provides flexibility as well as adequate borrowing availability.

If you don’t have a strong track record, it doesn’t mean financing is unavailable. It could just mean that you might start with a more restrictive structure or higher pricing for a period of time.

How important is a financial forecast in your ability to get a line of credit?

You and your senior leadership team should develop a forecast that represents your best estimate of how the business is going to perform going forward.

A lender is not only interested in where the company has been, it also wants to have a sense for what the future looks like.

Everyone understands that actual future performance will not exactly match the forecast, but the forecast should show performance that can support the line of credit being contemplated.

What is a line of credit collateral audit?

Lenders will often require a periodic collateral audit — a third-party checkup on how a loan’s collateral is performing and a profile of a business’s customer base.

For an accounts receivable line of credit, the audit will evaluate accounts receivable performance — validating that invoices are being issued against contracts or purchase orders, that they are being issued per contract terms and that payments are coming in per contract terms.

The audit will also measure customer profile information such as customer concentration. ●

Insights Banking & Finance is brought to you by Bridge Bank.

How to prepare your employees for EMV corporate credit cards

Credit cards embedded with Europay, MasterCard, and Visa (EMV) microchip technology will soon become the new standard in the U.S. These cards use personal identification numbers (PINs) and dynamic codes to protect transactions, but the transition to new cards and card-accepting terminals may come with a few hiccups.

“For businesses that distribute credit cards to employees to use for business expenses, it’s important to prepare for snags and to educate employees about how to use the new cards,” says Douglas V. Wyatt, executive vice president and senior commercial banker at Fifth Third Bank.

Smart Business spoke with Wyatt about steps businesses can take to smooth their transition to EMV credit cards.

How can companies help employees transition to the new cards?

The process for using these cards will be different from what employees are accustomed to. For example, in-store checkout may no longer require a card swipe, and employees might be asked to provide a PIN instead of signing. Companies can keep headaches to a minimum by assigning an employee to spearhead communications with card users and card issuers.

The designated team member should be available to provide troubleshooting tips, especially early in the process. Companies can work with their banking partner to educate their designated employees and learn about common issues, how to manage them, and who at the bank can help if a more complicated problem arises.

Prepare all card-using employees for these changes before they start making purchases as mistakes will be common initially. For instance, the process requires users to insert the credit card into a terminal and leave it there during the transaction, so people may forget to reclaim the card afterward.

Banks are helping with this education by providing print materials that explain how the card works, webinars to help cardholders and company administrators learn about chip technology, and help centers to answer individual employee questions.

Companies should consider creating a list of likely problem scenarios with troubleshooting solutions to ensure quick resolution.

How should companies manage their cards’ PIN codes?

Before employees can use their cards, they need to set up a PIN code and activate it by using their cards at a business that processes transactions in real time. The card won’t work properly until this has been done. While many U.S. companies conduct real-time transactions, some overseas merchants process transactions only once per day. Team members who travel internationally may run into issues if they use their new PIN for the first time with such a vendor.

Some employees assume that they can simply update it via their bank’s online management portal, but that’s just the first step. If they then try to use their new PIN at an offline system, it may not work. Employees who don’t know why their card isn’t working may try to use the inactive PIN multiple times and ultimately lock the card so it can’t be used at all.

What other risks must be addressed?

Chip technology is not capable of fighting all transaction fraud. The EMV card improvements do not help protect online purchases and they don’t add extra security for in-store transactions that still use the familiar magnetic stripe.

Employees using the corporate cards should be warned that the chip technology doesn’t make their cards invincible, and that they should still be cautious whenever they use them — in fact, it’s expected that online purchases will be more frequently targeted for fraud after the new in-store standards are in place.

Companies should ask their banks for advice on making online transactions more secure and issue warnings to employees that they need to be vigilant when making online purchases with their corporate cards.

Fraudsters follow the path of least resistance. While chip cards offer added protection, criminals will soon migrate to other tactics.

Fifth Third Bank. Member FDIC.


Insights Banking & Finance is brought to you by Fifth Third Bank

How to benefit from consolidating cash in order to optimize global liquidity

If your company has multiple subsidiaries, you may want to consider revamping your liquidity strategy to consolidate your cash.

Smart Business spoke with Chase Commercial Banking’s Dave Schaich about two options you could consider — physical pooling and notional pooling.

Why would a business consolidate cash?

The primary advantage is that it allows a company’s subsidiaries to borrow from one another to cover temporary deficits, which eliminates interest payments on short-term debt. And beyond providing a sufficient reserve, consolidated cash means that the company’s combined revenue stream will come from diverse sources, making it less volatile than the earnings of any single subsidiary. Predictability provides greater flexibility when investing the company’s surplus cash. A larger pool means:

  • Less cash needs to be kept available for emergencies.
  • More funds will be available for longer-term and higher-returning investments.

How much does structure matter?

It matters a lot. A solid liquidity strategy does more than simply distribute cash to cover shortfalls and earn higher returns on excess balances. A consolidated account should be managed in a way that provides subsidiaries with ready access, while maintaining tight control over the flow of funds and ensuring transparency.

A successful liquidity strategy reflects the company’s organizational structure and the relative independence of its subsidiaries. You might consider two structural options, physical pooling and notional pooling.

How does physical pooling work?

Physical pooling, or physical cash concentration, is the most straightforward strategy for consolidating cash flow. The result is a separate consolidated account to hold surplus cash on behalf of the entire company.

At the end of each day, the participating subsidiaries sweep their excess cash into the consolidated account, where it is invested collectively. If a subsidiary runs a deficit, the consolidated account ensures that the subsidiary receives the required funds.

For a company with centralized operational control, physical cash concentration has many advantages, such as the system of deposits and intercompany loans are highly transparent and relatively easy to control. Plus, automated controls can be put into place, further improving transparency and efficiency. The structure also maximizes the company’s flexibility when investing the surplus revenue that accumulates in the consolidated account.

How does notional pooling compare?

Notional pooling is an alternative to physically consolidating operating cash. It’s designed to solve many of the issues facing traditional cash consolidation. Instead of transferring funds into a single consolidated account, the subsidiaries keep operating cash in their own accounts. For purposes of calculating interest, however, the bank refers to a ‘notional’ position that combines the separate accounts of each subsidiary.

The single greatest advantage of notional pooling is the ability to operate in multiple currencies — an overseas subsidiary will not have to regularly exchange its currency to participate. Additionally, notional pooling allows subsidiaries to maintain greater autonomy over their balances. Each participant keeps its own account and will not see the daily inflows or outflows from a central account.

What might companies want to take into account when choosing the right structure?

Designing a cash pooling structure that optimizes global liquidity requires a number of decisions about organizational autonomy and impact. For example, it’s important to balance control over spending with the need for access to funds.

Multinational firms must also weigh a variety of tax and regulatory considerations when managing their liquidity and reconciling outlays in foreign currencies. And ultimately, your ideal liquidity structure must align with your own company goals and industry regulations.

It may sound complicated, but your bank’s international treasury experts can work with your accountants and legal team to structure the best solution for your company — and help you achieve the level of liquidity you need to drive global success.

Insights Banking & Finance is brought to you by Chase

A formal mentoring program aligned to common goals has great benefits

Mentoring can provide numerous benefits to an organization, in addition to the individual rewards it offers to both the mentor and the mentee, says Tim Phillips, COO at Westfield Bank.

“The beauty of it all is you’re promoting internal communication,” says Phillips. “It’s not bringing in highly paid consultants to coach your staff. You’re creating an environment where there is dialogue among different departments and a regular sharing of ideas. The value comes from being consistent as an organization, and discussing who is being mentored and what the content of that relationship is.”

That’s not to say that you want mentors following a script in the way they carry out their respective roles.

“Mentoring isn’t about on-boarding or orienting someone to your organization,” Phillips says. “It’s about providing a real time visual perspective into their career path, and building both leadership and communication skills. When you formalize a mentoring program, your mentors understand what the individual and the organization want to achieve. What’s great is that it can go a lot of different places, as long as they are aligned around that concept.”

Smart Business spoke with Phillips about building a strong mentoring program and how to know when it’s effective.

What benefits can mentoring provide?

As a mentor, you get to meet new people who you might not otherwise interact with on a regular basis. It can help you hone your leadership and communication skills and increase your awareness about the talent in your organization. Being a mentor demonstrates that you care about the organization because you’re helping to develop the next level of leadership.

From a mentee’s perspective, it makes you feel cared about. It can help build your  confidence when you interact with senior leaders and the private nature of it allows you to feel more comfortable in sharing candid dialogue.

Where should you begin in developing a mentoring program?

Be aligned around what it is your company wants to accomplish, whether it’s employee retention, improved communication or to develop the next generation of leaders. Have those things in mind and talk about them with your leadership team and then hold each other accountable to the process.

Take the time to document that process. You don’t want somebody to be mentoring the same person for five years, as it’s likely to will lose its value after a period of time. A mentoring program needs to be set up so that it is beneficial to both the mentor and the mentee and if it’s not, you should mix it up.

How do you identify your mentors?

We look for somebody who has been with the organization for a while, has a good perspective across all areas and can speak to the company’s history. You need a willing mentor, so don’t just assign somebody to be a mentor. The person needs to be engaged in the process and should be comfortable coaching others, otherwise it will be unproductive.

You also want somebody who is a good communicator and a good listener who can articulate on behalf of the organization. In general, a good rule of thumb is to have the mentor be one layer up in the organization from the mentee, in addition to being from a different department. You could do two levels up if there is a specific area of expertise to which you want to expose the person, but one level of separation typically works best.

If you’re struggling to find someone to serve in a mentoring role, go back to the benefits of being a mentor. You don’t want to make someone do it. But if you demonstrate that the person can become a better leader by mentoring someone else, it might change their perception of the opportunity.

How do you gauge the effectiveness of a mentoring program?

If you can find people in your company who have benefited from having a mentor at some time during their career, and are now themselves serving as mentors, that’s a sign that it’s been successful.

If it helps to retain your talented employees, enhances your culture, creates a belief that you care about your people and you are willing to invest in their personal and professional growth, you have strong evidence that your mentoring program is working.

Insights Banking & Finance is brought to you by Westfield Bank

Think your company doesn’t qualify for an SBA loan? Think again

There’s been a recent increase in U.S. Small Business Administration (SBA) lending across the nation, and Northeast Ohio is no exception. The region is experiencing an increase in new requests as projects put on hold during the recession restart. Companies know that capital has opened up, and many are utilizing SBA programs.

“Things continue to pick up, and we get more calls each day with new opportunities,” says Ron Schultz, vice president and commercial relationship manager at First Federal Lakewood.

Smart Business spoke with Schultz and Matthew Lay, vice president and commercial relationship manager at First Federal Lakewood, about the possibilities that SBA lending brings for businesses.

How are SBA loans typically used by companies?

Businesses typically use SBA loans, which are a guarantee on financing, for commercial real estate, equipment purchases, working capital needs and acquisitions. The loans are very useful when there is a collateral shortfall. In general, the maximum loan amount is $5 million with a minimum of 10 percent down.

7(a) loans are the most popular. They have a broad scope and provide the bank a guarantee on the funds, with up to a 25-year term and amortization. 504 loans, for real estate and large equipment purchases, are administered through a local community development corporation. And the Community Advantage loan, for up to $250,000, has increased in popularity over the past 24 months.

Who can qualify for these?

Nonprofits, lending institutions and investment properties are ineligible for SBA funds. Otherwise, most small business organizations are eligible. Revenue, employees size and balance sheet metrics are all considered.

The SBA will only approve funding for owner-occupied commercial real estate, which means the operating company must occupy at least 50 percent of the building.

Why do many business owners equate SBA lending with startups or early stage businesses?

Traditionally newer companies have had success with SBA products because of the following advantages:

  • Low down payments.
  • Extended terms and amortization.
  • Better fixed-rate options for a longer period of time.

However, existing or mature companies should certainly review all options with their bank as well, including SBA financing. In many cases expansion projects are based on projections, and the SBA has more comfort with projections versus historical numbers when compared to traditional funding.

Business owners may be initially unsure because of fees or paperwork hurdles, but that becomes secondary when they realize the benefits.

It also helps when you work with banking experts who know how to appropriately package a deal prior to sending it to the SBA.

If a business owner wants to learn more, what are his or her next steps?

The best way to get started is to contact your banker and learn about the various products and services that can help you accomplish your financing goals. Traditionally, banks consider conventional options first, and then research if the deal can be structured by utilizing an SBA program.

Often you can work with community organizations to put your company in a better position to get funding. These include the county, the Economic Community Development Institute or the local chapter of the SCORE Association, a nonprofit association of the SBA that advises and mentors entrepreneurs and business owners. The SBA also has several configurations that can help facilitate projects that are pending or approaching completion.

While an SBA loan won’t be a fit for every business, it just may be an exceptional way to grow yours.

Insights Banking & Finance is brought to you by First Federal Lakewood

VC capital is available to entrepreneurs with a solid plan to take market share

Venture capital (VC) investment is at a 15-year high and offers no hint of slowing down, says Michael David, managing director for Equity Fund Resources at Bridge Bank.

The second quarter of 2015 saw VC investments totaling $17.5 billion, the most since the first quarter of 2000, which was the previous all-time high. Overall, $50 billion in VC funds were invested in 4,400 companies in 2014 and David expects that figure to be surpassed this year.

One catalyst for the sustainability of this strength in the VC sector is the relative weakness of other markets, David says.

“If you look at the bond market and over the past year, the stock market, they aren’t delivering the returns they once did,” David says. “There is higher risk in VC, but there is a ton of capital chasing good high-potential companies that should help sustain the momentum.”

Smart Business spoke with David about the VC market and what companies can do to stand out with potential investors.

What factors are driving VC investment?

Activity in this sector is strong across the board. Even more important is the tremendous amount of fundraising that is taking place. In the second quarter this year, $10 billion has been raised by VC funds. That’s the strongest fundraising quarter since the last record in 2007 and a 27 percent year-over-year increase.

New Enterprise Associates raised a $2.8 billion fund and IDP Investments LLC raised a $1.3 billion fund just in the second quarter. The Social + Capital Partnership raised $600 million. So far this year, 50 new funds have been raised, a figure which points to some sustainability for the future.

More companies are remaining private longer and not going public because there is so much capital available, both debt and equity capital. Additionally, nontraditional investors have entered the market, particularly for the late-stage, higher profile, ‘unicorn-type’ companies with billion-dollar plus valuations.

It’s a good time to raise capital, particularly for software and media-focused companies.

Which opportunities tend to attract VC investors?

The three big areas of investment right now are software, media and life sciences. Once companies get to the point of needing to raise institutional VC, they need to have a product, early revenue and customers. So you need to be in the right market and there needs to be evidence of sustainable growth.

The really early seed-stage deals are being done by some of the smaller funds, the angel investors. Once they hit critical mass with either a product or some buy-in from customers, that’s usually a tipping point for raising capital.

VC investors want companies that are going to grow fast and take market share or have the ability to create new market share. Everyone is looking for growth. Companies that are me-too companies, or just have mediocre growth are not going to attract a lot of capital.

What’s the key to making a positive impression when you meet with investors?

Present your growth story and a realistic plan for how quickly you can scale the business with a boost of outside capital. VC firms want to see within a five-year window how quickly you can grow the company and create value.

Strong management teams are really important as is a market niche that can be exploited.

These are smart people that dig into the intricacies of the market and the backgrounds of founders and management teams.

They want to see a team that has experience, has built a vision and is able to attract the people needed to build a sustainable company. If things go in the wrong direction or the market shifts, they want to know that the business has the ability to pivot.

What about balancing risk versus reward?

There is willingness to take risks in the early stages and as the business starts to get traction, VCs can continue to fund in multiple rounds to grow it.

But the passion of the entrepreneur and the vision, if it can be validated, is very powerful. If the right team is behind it, it can attract other people and show potential for the future. A clear, well thought out vision is key to the success of any lasting venture.

Insights Banking & Finance is brought to you by Bridge Bank.

Why your search for an investor has to be about more than just money

Success in the world of biotechnology and life sciences requires a level of patience that is foreign to most types of businesses and industries.

On average it takes 10 to 12 years and over $1 billion in capital to get a new drug from the laboratory to the market to be sold to consumers, says Rob Lake, senior vice president and head of Life Sciences at Bridge Bank.

With such great effort needed to get your product out the door, you want partners you’ll be comfortable working with for extended periods of time. When you face challenges, as most growing businesses do at some point, the relationship you have with your financial partner can go a long way toward determining your future.

“Some lenders tend to over steer,” Lake says. “So on top of whatever is already going on at your company, a relationship with an inexperienced lender can make it that much more difficult to manage your business.
“That can be very stressful for a management team and an investor group trying to position your company to work through the issues and get back on track.”

Smart Business spoke with Lake about the real value of selecting a lender or bank that truly understands the challenges your business faces.

What should you consider when looking to raise capital in the life science industry?

You need a lender who understands your business. A standard bank that does commercial and industrial lending is likely to underappreciate the peaks and valleys of a life sciences company, such as navigating through regulatory agencies or the uncertainties of clinical trials.

There is such a thing as ‘greener capital.’ A knowledgeable lender knows how to react to bad news, and how to chart the best course of action to keep things on track. It’s like piloting a small plane. If there is turbulence, you’re not going to want to over steer in one direction or the other to try to stabilize the aircraft.

You want to keep it as steady as you can and it will stabilize once you get through the bad weather. The same applies to working with a lender that clearly understands the issues life sciences companies face and will work through occasional challenges along the way to help the company achieve its goals.

What are some key things to know before you meet with a lender?
You need to think about what you would do if things with your business don’t go according to plan and compare it with the underwriting rationale of the lender. Lenders will typically underwrite to a downside case to explore that scenario.

What if you do not get approval on an expected date and it takes another year to get that approval? How would such a delay affect your company financially? How much more money would you need to raise? What will it take to get there? Do you have the resources to get there?

The base case is a little more optimistic scenario and the downside case is if the wheels completely fall off. The more likely case is a third option in which the wheels don’t totally fall off, but maybe you have a flat tire. How do you fix it and get through that scenario?

It’s helpful to hear the lender’s mentality as they go through the downside process.  There are lenders in the space that offer more favorable terms (i.e., more capital or lower cost); however, it could cost more money in the long run (fees and legal expenses) if they haven’t thought through what the downside looks like.

What are lenders looking for in a borrower profile?

Lenders like business models that are diverse and have novel intellectual property supported by an underlying ‘platform technology.’ Multiple shots on goal help the lender mitigate risk.

They also want to understand the value proposition and see that it makes sense from a commercial viability standpoint. Ultimately, does the product and or service you’re developing address an unmet need?  Improve patients’ lives or clinical outcomes?  Save the health care system money?

Validation is another important attribute lenders like to see. This could come from many sources including the quality and reputation of your investors, strategic partners, a positive reimbursement decision or revenue traction.

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