When seeking an SBA loan, separate fact from fiction

Many business owners and entrepreneurs think that U.S. Small Business Administration (SBA) loans are exclusively for startups. However, these loans can also help existing businesses.

“A business simply has to show that it has the need for the expansion, which can be justified through projections that a bank will use to determine if the loan makes sense,” says Daniel Minick, Akron Metro Area manager and vice president at Consumers National Bank.

“If a company doesn’t have enough income, but buying equipment can help the business take off, the company may be a good candidate for the loan.”

Smart Business spoke with Minick about the common SBA loan misconceptions and what banks need from applicants.

What are the documents needed to complete a SBA loan application?

The two most common SBA loans are 7(a), which are meant to establish a new business and to assist in acquisitions and expansions of an existing business, and 504 loans, which are used to purchase real estate and fixed assets such as equipment. Regardless of which type is sought, banks want detailed information during the application process. Specifically, they want to know the history of the business, its current needs, details about the key players in the business, a break down of the costs for the purchase and financial projections for the business.

It’s also important for the business owner to provide three years worth of personal financial information for the banker. That’s because all loans must be guaranteed by the ownership of the business. Therefore, all guarantors or owners must provide personal financial statements. It’s a big piece of the equation.

When it comes to personal finances, bankers are looking for an individual with a decent financial history. A banker wants to see that a business owner has been able to maintain a good lifestyle while owning and operating a business, and that he or she is not carrying lots of personal debt.

For startups seeking SBA loans, bankers want to see that the individual or his or her spouse has enough income to be supported while the business gets off the ground.

What are some common misconceptions about SBA loans?

The biggest misconception is that the process can take months. The truth is most banks have streamlined the process so that it’s much shorter now. Really, the actual time it takes to get approval comes down to whether or not bankers have a full package of information from the applicant. If they do, the loan request can be processed and approval can be granted in two to three weeks. Real estate loans, however, will likely take longer because there are environmental and other reviews that must be completed before loans are granted.

The SBA guarantees the loan from a bank, which lowers the qualification threshold because banks are facing less risk. Even so, bad credit will be an impediment to getting an SBA loan because it can give bankers the impression that the owner is financially irresponsible. Student loans that have been charged off will automatically disqualify someone from getting a loan, for example. A felony will also disqualify someone.

What are the pros and cons of SBA loans?

Looking at the pros, SBA loan rates are close to those of traditional bank financing, whereas not too long ago those rates were higher.

Another positive is that the SBA can help with a collateral shortfall. Typically, a commercial loan from a bank would be 80 percent loan to value. An SBA guarantee could mean going higher because the SBA may mitigate a shortfall all together.

Also, SBA loan products have a greater chance of bank approval because of the guarantee that’s provided.
Looking at the cons, many banks making SBA loans have variable rates, so those seeking loans should choose their bank carefully. It’s best to find a lender offering fixed rate loans.

Another issue is that the SBA fees, depending on the product, can be higher than traditional financing.

Finally, business owners need to find a bank that supports SBA products because not all of them do. It’s also important to find a banker who is educated on the SBA loan process because they’ll be an advocate for the success of their customers.

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

How the foreign currency environment breaks the rule

The findings of the fifth annual Chase Business Leaders Outlook, a survey of over 1,600 midsized business leaders, show a growing optimism about the national economy. And for the first time in the history of the survey, middle-market companies’ optimism about the national economy exceeds their outlook for their local economies and industries.

But that confidence drops when looking outside of U.S. borders — at least in the near term. Foreign competition appears to be a significant challenge for middle-market businesses, rising to its highest level since 2012. Northeast and Midwest leaders, in particular, expressed concern regarding competition overseas, which may be tied to the rising value of the U.S. dollar and its impact on exports.

Similarly, manufacturers remain more preoccupied with foreign competition than other industry leaders, which again could be related to the dollar’s increasing strength and manufacturers’ concerns about the cost of commodities.

Smart Business spoke with Dave Schaich, president of the Western Pennsylvania Middle Market at Chase Commercial Banking, about the survey results and strategies for navigating a higher-dollar environment.

What expectations do middle-market business leaders have for 2015?

In general, business leaders have steady expectations for revenue and sales and slightly higher expectations for profits. The most bullish industry is retailers — 80 percent of retailers expect higher revenues in 2015 and 78 percent expect higher profits (up from 67 percent and 55 percent, respectively, in 2014). Of course, retailers also anticipate spending more than other industries, so it will be interesting to see how the year will shake out.

In terms of growth strategies, company leaders are planning to take a slightly more organic approach than they have in years past. Rather than expanding in target markets in the U.S. or across the globe, they plan to focus on attracting new customers, diversifying product and service offerings, and up-selling or cross-selling to their existing client base.

What’s the outlook for global business?

Although 27 percent of middle-market executives had an optimistic view of the global economy last year, that optimism has dropped to 19 percent in 2015. That said, leaders whose companies are doing business overseas or plan to in the near future tend to be more optimistic than their non-global peers.

When it comes to doing business internationally, business leaders cite currency risk as the area of greatest concern. This year, this concern has increased significantly — from 39 percent in 2014 to 50 percent. But given the strengthening dollar, this really isn’t surprising.

How should companies plan for currency risk?

It’s a brave new world. Businesses have to think about managing currency risk in ways they really haven’t had to deal with in the last several years.

Overall, 73 percent of leaders surveyed estimate that up to a quarter of their total sales will come from overseas this year. This is up 3 percent from 2014. And with this increased non-domestic exposure comes various challenges, not the least of which is foreign currency exposure.

For decades, academics have praised the benefits of hedging long-term economic foreign currency risk by issuing debt in the same currency. While this is still good in theory, today’s U.S. multinational companies may find that hedging on a much smaller scale adds unexpected exceptions to the rule.

There are two reasons for this. First, firms are generally reluctant to issue debt in a foreign currency when interest payments in that currency are higher than the U.S. Second, the accounting treatment of foreign currency debt is not always issuer-friendly.

In today’s global economic environment, the importance of managing the impact of foreign exchange rates on companies becomes increasingly important. Overall, while the costs of hedging (i.e., paying higher interest) are immediate, affecting all-important earnings per share targets, the benefits of hedging today come through reduced volatility that can only be gained using a long-term strategy.

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Today’s M&A market is optimal for high-performers, less so for others

Companies that are performing in the top quartile of their respective industries have many M&A options.

“Valuations for high-performing companies have never been better, buyers never more plentiful,” says Mike Burr, senior managing director, head of mergers and acquisitions at Fifth Third Securities.

Even though economic conditions are good, the supply of interesting, quality opportunities is limited, making analyzing the M&A market precarious.

“Companies that are not high performers in their industries should carefully consider their expectations of value before initiating an M&A process,” says Doug Wyatt, executive vice president, senior commercial banker at Fifth Third Bank.

Smart Business spoke with Burr and Wyatt about the M&A market and what strategic and financial buyers can expect this year.

Why hasn’t U.S. M&A activity more closely followed the positive economic news?

There is a significant focus on the multi-billion dollar transaction during the past 18 months, with transactions of over $1 billion dominating M&A headlines and corresponding transaction activity. The broad M&A market, which in 2014 was only modestly improved from 2013, understates the underlying positive conditions of the U.S. market. Significant liquidity, both from financial and strategic buyers, and a very low rate environment, create a very positive backdrop for sellers.

Between 2010 and 2013, middle market companies sought and executed various strategic recapitalization transactions to satisfy many of their liquidity goals. Many of these private business owners accomplished those goals and are currently struggling with the benefits of a full sale process despite a very positive market. That has sellers wondering where to invest their proceeds.

What industries are leading the way?

Health care and energy are notable industries of anticipated activity, but for different reasons. The aging population will help the health care industry continue year-over-year double-digit growth rates.

In energy, the falling oil prices mean many companies dependent on higher oil prices are faced with overleveraged balance sheets, which will create operational challenges and drive transaction activity in the second half.

What caused the year-over-year decrease in first quarter 2015 deal activity?

We’re seeing a period where the benefits of liquidity are not an exclusive focus of many private and small cap/middle market business owners. Many have already satisfied this need. The Q1 2015 middle market marketplace reflected this lack of motivation, with transaction levels down 20 percent. However, the large billion-dollar transaction activity continues unabated and is driving the overall M&A market.

Is the market overvaluing transactions?

This is always a big question when you see average valuation multiples exceeding double digits (as multiple of EBITDA).

Historically, when M&A valuations exceed the valuation multiples of the overall public market indices, it’s an indication we are approaching an overheated environment.

Corporate balance sheets and private equity funds have never been this liquid. How are they going to deploy this capital?

There’s just not the level of attractive transactions, so it’s likely that for the balance of 2015-16, valuations for solid, top quartile growth companies will remain high. This will challenge corporate and private equity balance sheets to put liquidity to work. However, the corporate buyers participating in the billion-dollar M&A market are starting to put a dent in their cash stockpile.

Are the new lending regulations hindering M&A activity?

It appears so. However, what is actually happening is a shift in the cost of capital as banks examine their leverage portfolios and pull back their leverage lending initiatives, which will likely increase as federally mandated leverage guidelines gain clarity. The reduction of less expensive bank capital will put more pressure on buyers and their cost of capital as more expensive alternative financing replaces bank financing.

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What to consider before launching a commercial solar project at your firm

As a business owner, taking on a new capital project requires careful thought and analysis. Will the new project benefit our stakeholders and our employees? Will the new project have a positive impact on our bottom line? The same thought process should be applied when considering a commercial solar project for your company.

“Business owners that are considering commercial solar projects should understand the economics of solar,” says Roy Pack, vice president and relationship manager in the Energy & Infrastructure Group at Bridge Bank. “Does it make financial sense for my business? That’s the way you need to look at it.”

If you are launching a commercial solar project, there are three things you’ll want to keep in mind: Who is going to build it, how are you going to finance it and what financial incentives are available to help you cover the project costs?

Smart Business spoke with Pack about these three crucial steps and some other keys to managing your next commercial solar project.

What kind of support can a bank provide toward building a commercial solar project?

A bank can often provide construction financing by issuing a loan and then directing the loan proceeds to pay the contractor/builder or the manufacturer of major equipment such as solar panels. Because the nature of repayment relates to the quality of the solar energy facility, a bank should have knowledge of high-quality equipment manufacturers and builders that are available in your area.

A bank with solar experience will also understand the construction process. Will the project require additional capital because it is a carport system? What happens in case of construction delays? How does the permitting process work and do I need to contact my local utility? When approached with a capital request, a qualified solar lender will understand these issues that a business owner faces. Business owners and banks should always share the same objective: to build a high quality solar facility.

What are the benefits of using a bank with expertise in financing solar power?

Most solar projects will qualify for one or more incentives that make the projects more financially attractive to build. Various incentives include cash rebates, tax credits, tax refunds or performance payments. Incentives can be based on the cost to build or electricity output, they can also be federal, state or local benefits.

Because of the complexity, a bank with solar experience can help a business owner fully understand and eventually monetize those benefits. A bank should also have the ability to incorporate those incentives into a borrowing formula which will increase the value of a loan to the business owner.

How important is your ability to be a project manager?

There are a lot of moving parts involved with solar projects, so you need to be a good project manager or have one in place. Stay on top of your builder, major equipment manufacturers and all the important details involved during construction.

Keep a clean accounting of all capital expenditures and understand the legal aspects of your new solar property. This will help you avoid headaches, keep your expenses down and manage the project from start to finish.

What about the project’s return on investment?

The ultimate decision of whether to build solar or not depends heavily on the project’s return on investment (ROI). It will reflect the project’s capex requirement, how bank debt can help pay for that capex, financial incentives and expenses required to operate and maintain the project.

In many cases the largest contributor to ROI will be a significant savings on a business owner’s electricity bill. A solar project can only be green-lighted if it makes financial sense. ●

Insights Banking & Finance is brought to you by Bridge Bank

Make the effort to work more closely with your bank and reap the rewards

There are a number of benefits to be gained from having a strong relationship with your bank, but it takes an investment of time and effort to make it happen, says Justin Vogel, vice president and relationship manager for Corporate Banking at Bridge Bank.

“Many business owners are going through their day and not even thinking about banking,” Vogel says. “That’s an imperative part of their business and its ability to continue moving forward. Having a banker that is going to worry about that end of your business is very important.”

One way to gauge the strength of your relationship with your bank is to answer the following question: Who is your banker?
“If you tell me the name of your bank and not an individual person’s name, that’s a sign that the relationship could be better,” Vogel says.

Smart Business spoke with Vogel about building a better relationship with your bank to boost your company’s financial performance.

What are some banking products and services that can make a business stronger?

A line of credit can be a huge advantage to companies that might have strong cash flow but don’t think they need a line of credit. These companies often don’t recognize the advantage of using a line of credit to pay their payables early and take advantage of the discounts. They say they don’t want to pay interest to the bank.

Let’s say you have a supplier that gives you a 2 percent discount if you pay within 10 days. The bank is going to charge you 4 or 5 percent annually and if you are paying that supplier six times a year at a 2 percent discount, that’s 12 percent.

Paying interest to the bank is a lot cheaper than the discount you will realize by using a line of credit. That’s one area where a company doing well isn’t taking advantage of very inexpensive financing in today’s market that could help it perform even better.

Businesses are getting a lot savvier as far as treasury management and international banking products and services are concerned. It’s become a big cost-savings mechanism. If you do a lot of wire volume, switching that over to Automated Clearing House (ACH) transactions is a big fee saver.

Issuing ACH payments is also more secure than issuing checks just from a security and fraud prevention standpoint. Fraud prevention, convenience, technology, those are all areas where we’re seeing a big uptick. A lot of that has to do with the fact that you have a lot of the older generation of business owners, the baby boomers, who are starting to retire.

So you have a younger business community coming in that is used to doing personal banking on their smartphone. They want that ease of use with their business banking as well.

How can a company enable a bank to provide even greater support?

In an effort to save some precious time, businesses will often provide the minimum amount of information to their bank or potential lender to try to get a term sheet before they go through the hassle of providing all the detailed information that would normally be required for complete underwriting.

When you do that, you’re often getting a worse deal in the process. Once that proposal is accepted, the pricing and structure that is in there is usually going to stay, even if beneficial information is uncovered through the due diligence process.

Provide as much information as possible upfront to get the best structure, pricing and deal possible. Be organized before you go to your banker and have projections at least for the current year. That provides your bank with a better idea on how to structure the plan and anticipate your future needs.

How can the relationship with your bank be strengthened?

The squeaky wheel gets the grease. Your banker might just assume that you’re happy and not be proactively thinking of ways to improve your customer experience. Tell your banker you’re curious about what new products and services they have coming out that could help your business, and let them tailor solutions to meet your needs. ●

Insights Banking & Finance is brought to you by Bridge Bank

Why a resurgent economy is opening new doors for small business owners

It’s a good time to pursue financing through the U.S. Small Business Administration (SBA). The economy is growing, unemployment is low and entrepreneurs are cautiously optimistic that opportunities exist to expand their businesses.

One challenge many of these leaders face is the approach that is taken to obtain financial support, says Steven Chaker, MBA, senior vice president and regional SBA sales manager at Bridge Bank.

“The market in the SBA world is available to them,” Chaker says. “The problem is they don’t know how to approach lenders to get the right application and the right uses of funds. They might have a good plan and a good idea in their mind about what they want to do with their business. But they can’t translate it to the lender and say, ‘Here’s what I want to do. Let’s move forward.’”

Smart Business spoke with Chaker about the right approach to take with lenders as well as some of the changes that affect the SBA program.

What are some advantages to working with an SBA lender?

First of all, in every bank, there is a commercial lender and an SBA lender. Most banks also have an asset-based lender. Most borrowers ask for a working capital line of credit because that’s what they know how to ask for.

There are several problems with this. Sometimes the request is too small for a commercial lender to look at. It may also be that the potential borrower does not have the qualifications for a commercial lender to look at their plan or their receivables may not be big enough.

Most borrowers look for working capital as a way out of an issue that they are facing. They may have incurred a little bit of debt and at the time, it looked good and made sense. But now they are paying too much per month and so they see working capital as a way out.

A better solution would be to refinance and consolidate what you have outstanding and reduce your monthly payment.

You’ll be better off taking this approach than asking for additional debt on top of the debt you already have incurred. SBA lenders know how to talk to people in these situations and help them find the right solution that best fits their needs.

These lenders can take the time to look at your plan and offer feedback on what’s good about it and what might require some adjustment.

The key is having a clear idea of what you want to do and the ability to convey it in a concise manner. It might be a good idea to work with a CPA or broker who can help you develop your plan and make a strong presentation to your potential lenders.

How have recent changes affected the financing market for SBA loans?

The SBA announced last year that it was eliminating or revising several requirements for its two main loan programs, 7(a) and 504. The rule change expands eligibility, makes it easier for small businesses to secure SBA-backed financing and encourages job creation.

The changes include the elimination of the personal liquidity test, which benefits borrowers by adding flexibility in the management of their allocation of personal resources to the small business.

Prior to this change, if the business owner had too much liquidity in his or her personal accounts, that owner would not qualify for SBA financing. The thought process was that potentially good business owners were being turned away. If you have too much liquidity, that makes you a good candidate for support.

Finally, it was announced that a temporary program set up to allow small businesses to refinance commercial real estate mortgage debt with a 504 loan has ended.

The program was created in the wake of the economic downturn to give small business owners another tool to remain viable and protect jobs.

With the economy improving, the program was viewed as no longer necessary.

Refinancing a 504 with 7(a) is still allowed, if both the first and the second deeds of trust are included. ●

Insights Banking & Finance is brought to you by Bridge Bank

Many times, the answer is one or the other; but sometimes, it can be both

Business leaders struggling to decide between raising debt vs. equity as the best path to growing their business need to stop and think about what they will do with the money once they get it — and what the actual need is. Is it a true working capital need?

Or something else?

Your hard-earned capital will almost always be spent in one of two buckets — working capital and everything else. Depending on your business model, however, you may find that your needs require a mix of both.

“People sometimes think that the greatest thing in the world is to go out and raise equity and take the money in,” says Roger N. Klarmann, senior vice president for Technology Banking & Capital Finance at Bridge Bank. “But that comes with a lot of pitfalls because you give away a piece of your company.”

Taking on debt allows you to retain control of your business, but it may not be enough to cover the resources you need to get your business to where you want it to be. And this factor many times necessitates raising equity. Used together, debt and equity can be a powerful tool to foster incredible growth.

“If you need to build a sales force, a work infrastructure, technology enhancements, and the like, that’s not a working capital problem,” Klarmann says. “That’s an equity problem.”

Smart Business spoke with Klarmann about how to make the right call for your growing business.

What are some common mistakes leaders make trying to grow their business?

When you go out to raise money, you’re going to be based against your performance. If the painted picture is too rosy and you don’t hit your projections, there are repercussions for not hitting those targets. A reasonably modest growth forecast is better than one that is too hard to reach.

Another common mistake is taking equity at all. There’s no sense giving away part of your company if you don’t need it. If you can get away with debt financing and that can get you to where you want to go, it’s a better way to go.

What is an example that illustrates the advantage of debt over equity?

Let’s say you’re in the digital media business and you do ad campaigns for some of the more notable brands and/or advertising agencies. At the end of the month, you bill your customer $100,000 for services performed in that month. The customer responds that you will be paid in 75 days.

So you spent all that money during the month on payroll, on vendors, etc. — and now you have to wait 75 days to get paid. You have a massive working capital need. Raised equity should not be used for this working capital dilemma. If you have that cash, it should be left on the side and used only for non-working capital issues.

What a bank can do is put together an accounts receivable facility where it will give you $80,000 of the $100,000 the day after you bill the customer. You can take that $80,000 and go on to the next project.

If you go the equity route, you might find a partner who can provide you with $1 million in cash. But they might take 30 percent of your company in return. If you follow the debt plan, you’re not giving away any part of your company and you’re getting all the money you need to complete the next month’s work, and some of your profit as well (in the above example).

What is some advice for a business owner who wants to raise equity and/or debt?

The critical factor here is to find people who know your business, can add value to your business, and are people who you feel you can work with.

Sometimes the ‘cheapest’ looking cost of capital can be the most expensive to take. You will hit bumps in the road for sure, and when bumps are hit what will your capital partners do and how will they react?

It’s always smart to ask for references. If it’s a bank, ask for companies where bumps were hit. Call those people and find out how those issues were handled, and in what fashion. Do the same with equity folks.

Don’t be afraid to ask questions or look for details on how the potential partner can help out your company. Make certain that your potential equity investor and banker know your space, and have history in it. That helps tremendously as they need to know your business and how it works. ●

Insights Banking & Finance is brought to you by Bridge Bank

How bankers can help manage unseen corporate financial risks

Prudent business leaders seek to minimize the impact of risk from all sorts of macroeconomic events: oil price fluctuations, the Canadian dollar’s rapid decline in value, the Euro’s volatility and Russian geopolitical concerns. But most business leaders seek help minimizing risks like these after the fact, even though they know they should address risk at exactly the opposite time.

Identifying risks that go beyond the headlines, long before obvious problems are looming, is key, says Douglas V. Wyatt, executive vice president, senior commercial banker at Fifth Third Bank.

Smart Business spoke with Wyatt about identifying and mitigating corporate financial risk.

What kinds of conversations should business owners have with their bankers regarding risk?

Your banker should talk with you about the impact of both well-known and lesser-known current events to understand the ‘headline risk’ — the obvious problem — and the risks that lie beneath the headlines.

Some businesses know they have certain risks, but they don’t realize others. Your banker can help you confirm risks you see and identify potential flash points you may not be aware of.

Your banker should also help you identify your risk tolerance and help you create policies and procedures around it. There is market-driven cost to any sort of hedge you put on protecting against a future event. Just because you have a risk doesn’t mean you need to or can afford to hedge against it.

How do you determine whether a hedge is financially viable?

A shock analysis can help identify a business’s risk tolerance. For instance, what if a currency or a commodity moves 5 percent or 20 percent? Is it meaningful? How much will it cost to mitigate?

Some business owners may believe they have a high tolerance for volatility or risk until they see an analysis that truly paints a picture of the potential impact.

What does hedging against risk cost?

The cost is based on the asset class that’s being protected, the volatility of that asset class, the underlying risk and the duration of time the business is looking to hedge. Assessing risk is a dynamic process. Once the hedge is implemented, it is reviewed frequently to determine how effective it is. As market conditions change, that hedge may need to be restructured. For instance, when a bank attempts to hedge against an event with a long time frame, there’s far greater uncertainty. That means there’s more volatility and higher cost with that hedge.

What are some risks bankers typically discuss with a business owner?

A banker often examines a business’s operations to identify risks that exist from a currency standpoint. A banker will also examine commodity input and output as well as the impact the interest rate environment has on both a business’s debt and its current and future expected cash flows. Global operations will be examined to assess what currency risks may be apparent, including direct foreign exchange risk and indirect economic risk that occur when a business pays or receives U.S. dollars from its importing or exporting activities.

From a commodity standpoint, a banker will help companies identify various inputs and outputs in their business practices to make them aware of risks that they may not have fully realized or quantified. For instance, with interest rates at historically low levels, there can be an impact on the company’s cash and use of cash, as well as its longer-term debt structure and debt cost. If beneficial, a banker will help the company take advantage of the current interest rate environment to assist in keeping its cost of capital at a competitive level over the next three to five years.

The bottom line, however, is that there is no one strategy for hedging risks. Specific strategies are determined by risk appetite, organizational structure and product suitability for the underlying risk. It’s important to talk openly with your banker about your operations and your risk tolerance to determine a plan that’s right for you.

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Does relationship banking really exists?

When a company is looking to transition from its current bank to a new one, competing banks will all pitch the potential client on relationships. Often, however, they’re pitching a relationship with the bank and its services, not with the person responsible for the account.

“A true banking relationship is about knowing who you’re dealing with, understanding them as people, and dealing with the people at the bank who actually make the decisions, not a computer,” says Kurt Kappa, senior vice president and market leader at Westfield Bank.

“It’s important that your banker gets to know your business, what keeps you up at night, what could help you generate more revenue. A great banker gets to know your entire circle as people. That’s relationship banking — knowing customers as people, not just saying the words.”

Smart Business spoke with Kappa to understand what true relationship banking entails.

How might banking customers be misled by the concept of relationship banking?

To some banks, relationship banking means personal accounts, car loans or private banking services. Those might be great solutions, but banks all have the same products, for the most part. Real relationship banking is about building an understanding with your banker. It’s real people doing business with real people who care about each other as more than just customers.

Relationship banking is more than just talking. There are tangible benefits. For instance, true relationship banking gives you an adviser on your side who can help you grow and help you when times are tough. By understanding your business, your banker can look out for your financial interests while you concentrate on your business. In this arrangement, your banker knows what you need, which means you don’t have to tell the same story over and over.

What is a true relationship banking arrangement?

Business owners need someone who is an advocate for them, not for the bank or the line of banking they manage. For instance, at many banks you’ll deal with one person who handles equipment loans and another person for a line of credit. In each of those instances, whoever you’re dealing with will be pushing only the products for which they’re responsible, regardless of how they might fit your need.

In true relationship banking, one point of contact manages all of your deals. That person understands you, your business and your cash flow cycle. He or she is in a position at the bank to make decisions and is making recommendations based on conversations with you about your business, your risk tolerance, your plans.

Let’s say a company thinks it needs a term loan. That may not be right. If that request were processed, it can mean that business is locked into a product it didn’t need and ends up costing more than it helps. That doesn’t happen when a company has a good working relationship with its bank because the banker knows the right questions to ask to find the right product for the situation and the business.

What might banking customers miss out on if they’re engaged in a non-relationship banking arrangement?

In any banking arrangement that’s not relationship-driven you become not much more than a number. You get a debit card and a monthly statement, but you may not know who to turn to when an issue or opportunity arises. Instead, you’ll stand in the teller line with everybody else, tell them what you need, tell your story and hope they give you money.

Relationship banking brings flexibility on the structuring and price of common products. You can tell your personal representative about your difficulties and get individualized solutions rather than apply a strict definition of the rules.

A true relationship-driven banker will come visit your business to understand how you operate and understand your processes. The banker will work to learn your strategy and put a financing package together based on your specific needs. He or she will be there for more than just quarterly office visits. That personal level of service can reveal a person’s true banking needs, rather than uncover opportunities for an up-sell.

Insights Banking & Finance is brought to you by Westfield Bank

Cash management — the only thing you do with your bank every day

Far more than just check scanners and online banking, cash management is a large umbrella that encompasses managing the whole financial piece of your business, including mobile applications with real-time information, bill pay, automatic reconciliation, merchant services, payroll and HR management.

“If cash management is done well, it can attract more customers or business,” says Bonny Carroll, assistant vice president, Cash Management, First Federal Lakewood. “When customers know they are going to be paid in a timely fashion and the right information will be provided, it leads to great partnerships.”

“Cash management is vital to all businesses’ success because of the efficiencies and protection it provides,” says Matthew Lay, vice president, commercial relationship manager, First Federal Lakewood. “You know exactly where your business stands financially, which helps you plan for future growth.”

Smart Business spoke to Carroll and Lay about best practices for cash management in your organization.

How can businesses better use cash management solutions?

Companies need to be proactive. Unfortunately, most consider a cash management solution like positive pay or fraud protection only after they’ve had a problem. Treasury management needs to be a priority. An annual review of cash management tools as well as where the company can improve is critical.

Business owners also make decisions on collection or credit card products without a comprehensive review of the available options. Some key services companies should include are credit cards that are set up with next-day deposits, a payment system that offers rewards to repeat customers and receivables that are updated automatically.

Your banker has deep expertise in business banking and can educate you on all of the services available. By leveraging best practices from similar businesses, he or she can offer insight into which solutions might meet your business needs most effectively.

It’s important to remember that the option that appears least expensive may cost you more on the back end. For instance, some merchant service solutions don’t transfer funds for three or four days and updates may not integrate with your internal system or checking account. Timely reconciliations update the entire business process, which allows you to monitor your accounts in real time and reduce the likelihood of fraud.

What trends are you seeing in the industry?

Check transactions continue to decline in favor of automated payments via electronic payment or credit cards. It’s safer, because one of the greatest fraud risks is your bank account information on checks. With an electronic payment, vendors don’t have access to that information.

Merchant services and credit card payments are more acceptable at all applications, including paying discretionary expenses, as companies take advantage of discounts. Credit cards will likely become even more popular as chip and pin cards become more ubiquitous. Later this year, chip card technology will be the new global standard for debit and credit card payments.

Another emerging trend is conducting business via mobile devices — using phones to approve wire transfers, transfer funds between accounts, make deposits, etc. Banks also are providing security awareness training and recommending controls for those who take advantage of online and mobile applications.

As technology use grows, has cash management become less personal?

Online cash management services help keep you connected to your financials, but that doesn’t mean it’s any less important to have an ongoing dialog with your banker.

You need to communicate regularly to explain your business processes so you can get advice on how to mitigate risk, internally or externally, and how to introduce additional efficiencies with cash management products. It’s also important to meet with your banker to understand new technology and best practices they have employed with similar business clients.

The right banker takes time to know your business, establishes a partnership with you to ensure your data remains secure and recommends banking products, services and solutions that can help your business grow.

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