A look at PPP forgiveness, staying afloat in rough markets

Business owners quickly reached out to their banks to apply for the Paycheck Protection Program (PPP) loan when it became available because they needed a lifeline. The economy, in a matter of days, essentially shut down, but businesses still had expenses coming through — employees on their payroll, lease payments — and they were looking for help to get them through the short term.

“Businesses essentially went into survival mode,” says Kurt Kappa, chief lending officer at First Federal Lakewood.

Businesses awarded the PPP loan now have many questions regarding loan forgiveness and repayment. And just about every business is looking for the best way to stay above water as markets reopen and begin to recover.

Smart Business spoke with Kappa about the PPP forgiveness process and where companies should put their focus in the short term.

What should business owners understand about PPP loan forgiveness?
The sense when businesses first applied for the PPP loan was that it was free money; that as long as they use it to cover the next two and a half months of payroll, they don’t have to pay it back. That’s correct. But if the money isn’t used for payroll, it’s not fully forgivable and will require repayment.

Businesses were asking their bank how they could maximize their forgiveness because they didn’t want to come out of the downturn with more debt on their balance sheet. Many are having ongoing conversations with their CPAs about the compliance process. In the meantime, they’re essentially watching every decision they make and how those decisions might impact them 30 days down the road when they need to provide supporting documents on how they used the loans. Their banks will then submit that information to the Small Business Administration (SBA) and it will process their loan forgiveness.

There may not be answers to all the questions out there, but businesses are doing the best they can to use the tools available to navigate the uncertainty.

What will the SBA take into consideration for forgiveness? 
There are a few key considerations the SBA will look at when reviewing forgiveness. They will look at the date of disbursement for the business’s PPP loan proceeds plus the following eight-week time period. A business’s headcount and payroll will need to remain intact and an understanding of the average number of employees will be needed to determine loan forgiveness amounts. It all comes down to timing — businesses should make sure that 75 percent of loan proceeds are used for payroll expenses within eight weeks of receiving the funds and before June 30.

How should businesses prepare for loan forgiveness? 
The SBA has guidance posted on its website and updates it daily. That is the best and most accurate source of information.

However, there is one thing that’s certain: If businesses don’t have the documents requested by the SBA, their loan will not be forgiven. As companies begin to compile this information, they should reach out to their CPAs or banker for a deeper dive into how they should approach the forgiveness process.

What might the “new normal” look like for businesses?
Businesses are going to need to get more creative in every way, including how they operate. It means being proactive, leveraging technology to compensate for the inability to hold in-person meetings, and being flexible, especially with workforces that now need to work remotely. The faster businesses can adjust their approach, the more likely they are to survive.

These are unprecedented times. Companies are building an airplane as they’re flying and just about everyone is in the same situation. It’s important that companies work with partners such as bankers and CPAs to get an honest assessment of their financial, competitive and organizational situation to figure out the best path forward.

Based on preliminary guidance from the SBA as of May 5, 2020, and is subject to change.

Insights Banking is brought to you by First Federal Lakewood

Avoid the urge to make hasty moves in your retirement plan

A few months into the public health crisis and market downturn, many people have likely logged in to their retirement accounts online and discovered the negative toll the pandemic has taken on their balances.

But there’s good news: What’s happening to retirement plans today is not the same as what they went through during the Great Recession a decade ago. And that’s why it’s important not to make moves in haste today based on what happened back then.

Still, some plan participants are cashing out or are no longer contributing to their retirement plans. But, according to Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, those might be the two worst things people could do right now.

Smart Business spoke with Altman about what’s happening to 401(k) plans and what moves should, or shouldn’t, be made to mitigate losses.

What has happened recently to 401(k) plans?

Asset levels in retirement plans have been falling, but slightly less than in other investment accounts because, as a whole, retirement plans are generally moderately aggressive.

These plans have been somewhat more resilient because of actions taken by the federal government. For example, the SECURE Act included provisions that are beneficial, long-term, to participants, such as automatic enrollment and escalation of deferral. Also, the CARES Act removed the requirement for minimum distributions for those participants, which means they can keep more money in their plan. And the Paycheck Protection Program allowed retirement plan contributions to be included in the payroll calculation when companies applied for the program’s loan, so employers can continue to make retirement plan contributions.

How have those with 401(k)s reacted to the market’s effect on their retirement plans?

Some participants have taken their money out of the market. Other participants have stopped putting money into their 401(k) plan. In the long-term, both these moves are likely going to be detrimental to those participants. Much of the losses in the market have already come back. Those who took their money out won’t capitalize on those gains. And those who have stopped putting money into their plans have lost the benefit of buying low. Both will have less money in their retirement plan accounts because of those hasty moves.

What should plan participants do right now?

Retirement plans are perfectly designed for this kind of volatility. It’s a systematic investing approach by which participants make regular plan contributions over a long period of time. Participants that are making contributions can take advantage of volatility when the market goes down because they’re buying low. And there are also opportunities to rebalance portfolios to take better advantage of a down market. So participants  should be focused on dollar-cost averaging to maximize the opportunity.

Most plans are set to be automatically diversified or rebalanced on behalf of
the participant by a professional money manager. For those who manage their own plans, it’s important to stay balanced and diversified. Don’t try to time the market. Keep the bigger-picture perspective and rebalance according to a long-term strategy.

Who should plan participants talk with before they make changes to their plans?

Before sponsors or participants make any changes related to the design of their plan, they should discuss with an adviser what moves could be made to enhance the plan or protect it from additional risk.

But the worst thing someone with a 401(k) could do right now is take their money out of their plan or stop contributing. There are still opportunities for these plans to make money. Some may decide to make their portfolio more conservative to lower their risk exposure, but they should absolutely continue to make contributions, especially if they have an employer match or a profit- sharing contribution.

Bottom line: Don’t panic. Instead, leverage the advice of professional management, and stay balanced and diversified with an allocation strategy that matches your risk tolerance and time horizon.

Insights Banking & Finance is brought to you by Huntington Bank

Strategies for companies with international currency exposure

In a market crisis, investors rush to safe haven assets, which for the currency market tend to be the U.S. dollar, the Japanese yen and the Swiss franc, strengthening those currencies. At the same time, money moves out of emerging markets, which depreciates those currencies.

In this troubled market, a depleting demand for oil has caused crude prices to collapse. That has also had a negative effect on emerging market currencies that are highly tied to oil. These actions together have created significant risks for many U.S. businesses.

“Another unfortunate aspect of a crisis like this is that business forecasts just get totally thrown out the window,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “When companies hedge, they often project out a year or two. But in a crisis like this, those forecasts are cloudy at best. It’s a paradox that in a crisis hedging is more important — you want to be protected and insulated against risk — but it’s difficult to implement because of the uncertainty in exposures. It’s a tough environment to deal with.”

Smart Business spoke with Altman about risk-hedging strategies for companies that have exposure to international currency markets.

Who has exposure to risk in foreign currencies at the moment?

If you are selling in foreign markets and the dollar strengthens, then the value of those foreign sales goes down, which can have a significantly negative impact for larger companies. If you’re manufacturing or purchasing material outside the U.S., the strong dollar could be beneficial because it gives you more purchasing power there.

There is also a second-level effect. If you’re a U.S. company primarily dealing in the U.S., you might not have direct foreign currency exposure but you might work with suppliers or customers that are foreign-owned or have operations that are heavily involved in international supply- chain activities. They might become impacted by foreign exchange rates or market impairments. And even beyond foreign exchange rates, international supply chains are facing challenges because companies have had to furlough employees or are partially or entirely shut down.

How can companies mitigate their exposure to risks in foreign currencies?

If you’re concerned about international risk, consider extending hedge tenors. A typical hedge might be inside six months or a year. But now you might want to consider looking out two years because you’re concerned about the longer-term risks to the business.

The other thing that you can do is increase hedge ratios. You may typically look to hedge 50 percent of your foreign purchases out a year, but now you might want to hike that up to 75 percent or all of what you anticipate purchasing because of the risk in the market.

When you’re very certain about hedging, you can enter into a forward rate contract and that’s what a lot of our companies use to enter foreign exchange hedges. But if you don’t have total certainty in the underlying exposure, then you should look for alternative hedge instruments, such as FX Options. That’s something to talk with your banker about to find the best strategy.

Should companies now focus on risk mitigation or finding opportunities?

Initially it’s important to stop the bleeding, focus on shoring up core capabilities and be really diligent about your risk management framework. Identify and quantify critical risks in the context of your risk tolerance, then look for strategies to hedge the risks that exceed that tolerance. This process can be done with a banker or accountant, who can then help you come up with a plan to hedge risk. With the bleeding stopped, you can be on the lookout for opportunities with partnerships, investments and in the M&A space, for instance.

There is uncertainty right now that makes hedging strategies difficult. Working with a bank and developing a plan within your strategic framework can help you identify risks and develop a plan of attack.

Insights Banking & Finance is brought to you by Huntington Bank

The importance of culture to your company’s growth

The growth indicators banks consider when examining the health and progress of businesses tend to be quantifiable. They include industry financial ratios and how they’re moving; if there’s inventory, how it’s turning compared to national averages in the specific industry; the pace of hiring and turnover; revenue and profit; etc. 

However, there is another factor that is hard to quantify but has an outsized impact on a company’s growth: culture.

“Culture is everything because culture drives the behaviors of the employees and the behaviors of the employees drive results,” says Wesley Gillespie, regional president at ERIEBANK. “Culture is oxygen to a business — you don’t see it, but you’ll know if it’s not there.”

Smart Business spoke with Gillespie about the role culture plays in company growth.

How does culture affect a company’s growth metrics and its ability to hit its growth goals?

Company cultures commonly fall short in one of four areas. They might not be able to:

  •   Clearly define their culture.
  •   Manage and shape their culture so that it fits their definition of culture.
  •   Align their culture with their market strategy.
  •   Leverage their culture in times of positive or negative change.

Culture is critical to the sustainable growth of any company. It’s possible to grow with a bad culture, but those looking for sustainable, long-lasting growth need a consistently good culture.

Strong cultures require a high degree of trust — both among employees and in the company leadership — and that’s critical to longevity and growth. Low-trust cultures typically have disengaged workers as well as higher operating costs that come from an inability to move definitively and efficiently in response to changes in the market or to new company initiatives. Those higher operating costs impede growth. 

How well do area companies understand the state of their culture?

Companies typically wait for a triggering event to examine their culture. Often it’s after something goes wrong, when they want to position their company to sell or are having issues with high turnover. It’s rare that a company gives attention to its culture when things are going well. That can be explained in part because it’s difficult for leadership to asses or understand their culture while they’re in the weeds running the day-to-day operations. Many things become invisible and that makes assessing their organizational culture difficult.

One way to gauge the health of a company’s culture is with anonymous engagement and employee satisfaction surveys. These can be done internally by the company or an outside agency can issue them. In the results, companies should look to see if they’re getting similar responses about the culture at all levels of the employee population and across departments.

If there are similar responses from diverse employees and departments, that’s the culture. If they’re all saying something different, a company might have good workplace but the culture is lacking. The next question the company needs to ask itself is whether it has the culture it wants, or does it want change?

How can companies foster a culture that fosters company growth?

First, define the culture, then communicate those cultural ideals to employees. If there’s a gap in the culture and the cultural ideal, then identify the issues creating that gap and address them.

Once culture is defined and communicated, aligning the strategies of the business to the culture is the next step toward ensuring the organization is synchronized. This is how engaged employees impact company growth. 

Culture shapes attitudes and behaviors in wide-ranging and tangible ways. Company leadership needs to lay the foundation and occasionally take the temperature to see if it’s where it should be. It’s more than just putting up a poster in breakroom. It’s living it every day, tracking employee behaviors and correcting when necessary. And that’s critically important because culture drives behavior and behavior drives results.

Insights Banking & Finance is brought to you by ERIEBANK

Should your 401(k) have socially responsible investment options?

The meaning of the term socially responsible investing (SRI) continues to evolve as 401(k) plan participants look to align their investment portfolio with their values. More conversations around environmental, social and governance investing (ESG) are happening. And that’s coming not just from the youngest generational demographics in the workforce but from all generations.

“Interest in ESG investing is broad,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “Plan participants of all ages are asking more questions about how companies behave, their impact and their intentions.”

Smart Business spoke with Altman about socially responsible investing and what employer plan sponsors should know.

What is socially responsible investing?

SRI had typically been concerned with a couple things. One is negative screening, something that’s most common with faith-based organizations — they might decide they won’t invest in companies that deal in tobacco, alcohol or firearms, for instance. The other dealt with environmental concerns and is what most people think about when they think about SRI. But environmental concerns don’t just mean solar panels and windmills. SRI now also includes environmental, social and governance investing (ESG), which, puts the focus on those elements, though each area of interest can mean something different to each investor.

What should employers know before adding ESG investment options to a 401(k)?

While some employer plan sponsors might be eager to include ESG options in the portfolio to capture the interest of socially conscientious investors, there is good reason to approach the initiative with caution. Adding ESG options to a plan could signal to some that the employer’s belief system is showing itself in that decision, and that has ramifications. A plan sponsor that constricts investments to only ESG options could find themselves the target of criticism by plan participants if the investments are seen as politicized or impinging on someone’s religious views.

The best approach is think in terms of complementary strategies. Don’t get rid of a fund in a lineup just to add an ESG option. Instead, introduce ESGs as new offerings that complement the existing plan.
It’s also a good idea to have an open conversation among stakeholders about changes to the plan rather than leadership making the sole decisions. Be collaborative and document the process to defend the position that’s reached regarding ESGs.

How might including ESG investment options in a 401(k) plan affect plan performance or participation?

There tends to be a negative connotation of how ESGs affect plan performance, mainly because of embedded SRI ideas that, at their extreme, completely exclude certain industries, such as fossil fuels. Adhering to such a strict portfolio could lead to underperformance. However, as ESG ideas have progressed, it’s less about excluding industries or companies and more about considering the direction of those businesses. For example, a fossil fuel company might pump oil but its R&D for wind, solar and other sustainable sources of energy are on the cutting edge.

Participation in employer-sponsored plans hasn’t shown a drop off when a plan lacks ESG-offerings. Part of that has to do with the fact that most plan participants use the default vehicles — target-date funds for example — when they enroll in a 401(k).

How have asset managers adjusted their plan offerings to accommodate socially responsible investing?

Asset managers that sponsor 401(k) plans are becoming more ESG-minded. Some are integrating ESG options into all funds almost by default. There could soon be ESG-dedicated strategies as well as plans in which ESG options are integrated with more mainstream options. Increasingly, the demand for ESG is there from a participation standpoint, but not all asset managers have brought those options into their plans.
ESG investing is a growing and worth-while discipline in investment management. Employers shouldn’t be afraid to tread into this area, but should do their research before acting.

Insights Banking & Finance is brought to you by Huntington Bank

Digital banking tools are great, but they can’t replace a good relationship

Banking continues to change as advancements in technology lead to the development of new banking services. The convenience and accessibility delivered through these newly developed, technology-based services are influencing the expectations businesses have for the way banking is conducted.

“Businesses want access to funds and their account information the moment they need it,” says Kurt Kappa, chief lending officer at First Federal Lakewood. “Mobile banking, remote check capture and other digital services mean convenience and easy access. But when they have questions, they want the personal touch they get from a banking partner. To be successful, banks have to balance having the technology businesses want with the personalized, human touch they need.”

Smart Business spoke with Kappa about the value of a banking relationship in an increasingly digital banking world.

Why does it matter where a business banks when banking tools and account access are available 24/7?
Even though online banking tools are available at almost all banks, there are still many reasons to have a more personal relationship with a bank. The combination of digital tools to help a business be more efficient in their banking and a personal banker to address issues that are unique to the business is one of the key benefits of working with a community bank partner.

Technology is great, but it cannot solve an issue like an incorrect deposit amount or answer questions on a loan status. That is where the relationship with the bank and banker is vital, being able to speak to someone knowledgeable who can quickly resolve the problem or answer questions. Having a banker as part of the business’s financial team is the complement to the technology that keeps a business running smoothly.

What is the importance of maintaining a relationship with a bank if most banking can be done without interacting with a bank representative?
Technology-driven products are just a part of the day-to-day services banks offer. Establishing a personal relationship with a bank and a banker means having a partner to help address issues that businesses face and successfully manage their financial needs. Having a strong banking relationship can help companies looking to expand into a new market, buy another business, establish a line of credit and more.

How can a business ensure it’s able to do its banking when it needs to while also maintaining a relationship with its banking partner?
Each tool banks offer are all pieces of a puzzle. The goal should be to make sure that the pieces of the puzzle fit together in a way that works for both the business and the owner of the business. The pace of change in the banking industry will continue to be a constant as the industry looks to leverage technology to provide convenient and time-saving tools for businesses. But, just having the latest banking app isn’t going to solve every problem or address every issue that a business faces. Businesses also need a partner who can advise them as their needs change and obstacles are encountered.

That requires having a more personal understanding of the business in order to address its unique issues and help it thrive and grow.

It’s helpful to be able to talk with someone and get advice from a banking partner who has the business’s best interests in mind. Of course, it’s also important to save time and money by completing transactions any time of the day, any day of the week, right from the office or anywhere else through online and mobile banking.

Finding a bank that can offer a balance between time-saving tools and personalized service and advice is the best way to go.

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

How the Secure Act affects IRA, 401(k) plan holders and beneficiaries

The Secure Act, which passed and took effect Dec. 20, 2019, became applicable at the start of this year. The federal law made changes to a number of retirement vehicles, which means many people and businesses should take time to consider how the legislation affects them and their beneficiaries, and make adjustments.

“It’s been viewed by many as a patch, but it’s a significant change to the way IRAs are treated, and there are implications for 401(k) sponsors that shouldn’t be overlooked,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “The Secure Act is in place, so it’s important for account holders and sponsors to plan for its more significant changes, especially those that affect beneficiaries.”

Smart Business spoke with Altman about the Secure Act, some of the key changes it brings to IRA and 401(k) plans, and what those changes mean for account holders, their beneficiaries, and employer sponsors.

What changes to IRAs and 401(k)s are important to highlight?

The Secure Act makes a few changes that will largely benefit IRA holders. For example, the minimum distribution age for IRAs has been changed from 70.5 to 72. That, for many people, can represent a meaningful difference, as it allows for the money within an IRA to enjoy additional tax-free growth.

The law raises the age of restriction on making contributions to an IRA. Previously, IRA contributions were prohibited after the account holder reached the age of 70.5. Now contributions can continue as long as the account holder is working.

However, the law changes the rules that dictate the time by which funds in an IRA must be removed by a beneficiary after the death of the account holder. Currently the named beneficiary may take funds out of an IRA over their life expectancy. Now funds must be removed within 10 years of the original account holder’s passing.

How might the law change affect employers?

The Secure Act’s passage also brings new rules regarding who can participate in 401(k)s that are favorable for account holders and mixed for plan sponsors. One notable change is that the law allows more part-time employees who qualify under testing rules to participate in a 401(k). This is where business owners should examine their plans because there now might be part-timers who either need to be covered or want to participate. Those who employ a lot of part-timers might end up contributing more to their 401(k) plans if participation increases. While that’s an additional cost, it could help employers improve retention.

What have been some of the early questions or concerns regarding the changes?

One of the issues that’s arisen from the changes is how best to deal with second marriage situations. Some of those who hold IRAs want to make sure their current spouse is taken care of, but when that spouse passes they want the money to go to the children of the first marriage. The new rules makes that more difficult.

Taking money out of a traditional IRA means paying ordinary income tax on the amount withdrawn. However, by converting to a Roth IRA, when the money eventually goes to the designated beneficiaries, they won’t pay taxes on the withdrawals because Roth dollars are tax free.

More generally, however, most people want to understand how their beneficiary designations will work under the rule changes. That’s something that’s important to take the time to look at. IRA holders should talk with their with legal, tax, banking and financial advisers to determine a structure that makes the most sense for their situation.

The IRA and 401(k) changes brought on by the Secure Act will apply to lots of people because so many in the U.S. have assets inside an IRA or 401(k), or sponsor a 401(k) plan for their employees. These are broad-reaching changes with significant impact, so it’s important not to gloss over the issue. Talk with trusted advisers and ask good questions to determine how this affects retirement outcomes not only for the current holder, but also for their beneficiaries.

Insights Banking & Finance is brought to you by Huntington Bank

Cash management services should be a factor when selecting a bank

Businesses typically don’t jump arbitrarily from one bank to another. There’s usually a pain point, or a triggering event that causes them to look around.

In some cases, companies may outgrow their current bank, for instance after acquiring another company — the growth spurt pushing them past their current bank’s ability to support them — or a disruption in the business and the bank is no longer supportive. Sometimes, when it comes to products such as cash management, it’s a matter of a company feeling as if its voice isn’t heard by its bank.

“Businesses want service that is more personal,” says Wesley Gillespie, regional president at ERIEBANK. “For some, working with a large commercial bank can make them feel siloed — they can feel as if their bank isn’t willing to address their specific needs. That can sometimes trigger a company to look for cash management personalization elsewhere.” 

Smart Business spoke with Gillespie about what to look for in a bank’s cash management services.

How might cash management services differ from one bank to another?

Commercial banks of all sizes tend to have the same core services — wire transfers, online banking, remote deposit capture, etc. How banks charge for those services and their willingness to provide custom solutions, adapt to their changing clients, and the tone and attention of their customer service, however, all differ. 

Which bank is right for a business depends on what’s needed or wanted from a banking partner — whether that’s greater support, knowledge, customization, or products with greater functionality, better pricing or more flexibility in how they’re delivered. Some banks, especially those that emphasize customer service, will assign a relationship manager to their clients, which can offer clients a sense of being part of a team. The constant feedback can lead to customization as the relationship manager gets a better understanding of each business. The bank becomes a trusted adviser rather than a service provider. 

What should companies ask banks about their cash management services?

There are a variety of questions to ask when seeking a new banking relationship. Some of those could include: Does the bank require a specific data format to get information, or can it be customized? Who will provide the customer service for the business’s account — a bank’s dedicated team or a third party? How are cash management service fees calculated and billed — à la carte or fixed? How often are service fees reviewed? How many layers of leadership are between the business and the bank’s decision makers? 

Asking potential banking providers questions such as these can help make clear some of the complexity cash management services can have when trying to make comparisons across institutions. Ultimately, businesses should first determine what’s important to them when it comes to cash management services, then find a partner whose services are a match, or one that’s willing to cater to those needs.

Why consider cash management services when selecting a banking partner? 

When a business is selecting a bank, they’re often basing their decision on the bank’s role as a credit provider. That typically means lending rates and terms are the focus. However, that might not be the most revealing decision point for the long-term success of the banking relationship. Cash management services serve a very important role in the day-to-day operations of a business. It can often be a regular touchpoint between a business and its bank, and one that reveals the bank’s ability to customize its approach to meet a business’s needs.

Credit and access to capital are just two elements of a healthy banking relationship. Cash management is just as important because it’s a mechanism that facilitates the daily movement of cash — a vital component of a business. In this case, the size of a bank doesn’t necessarily mean it can offer the ideal cash management solution to a business. Often smaller community banks are the most competitive by offering customized solutions. A partner that’s eager to work with a company and understands its market is more likely to offer solutions designed to meet a business’s unique demands.

Insights Banking & Finance is brought to you by ERIEBANK

How to set your company up for success on the international market

There are major sources of volatility at the macro level now that are clouding what continues to be a relatively favorable global growth environment. Issues such as Brexit and, much more recently, the increased tension with Iran, are tough for businesses to think through with respect to how they might impact their business’s performance, often indirectly.

Further, and more acute at the micro level, are the current trade tensions with China and the potential for that to manifest in supply-side issues. Companies are concerned not just with how to deal with the increased costs associated with tariffs, but how to cope with the potential sudden loss of access to vital manufacturing components.

However, in spite of these headwinds, the international markets continue to offer compelling opportunities. In fact, many forecasters have recently increased global forecasts for 2020 to levels above the 2019 actual.

“It would be easy to assume, looking just at the headlines, that overall global trade is contracting,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “However, just in the U.S. between 2016 through today, year-end trade is up about 30 percent over that period, so companies are cognizant that there are still opportunities across the globe. The issue becomes how to seize on those opportunities while mitigating exposure to the obvious risks.”

Smart Business spoke with Altman about the keys to finding success on the international market.

What help for issues and opportunities in the international market are companies typically seeking from their bank?

In part, companies look to their banks for product solutions, such as trade services, foreign exchange, and credit insurance, that help de-risk foreign deals. But beyond that, many companies are looking to their banking partners for actionable insights. They want to leverage their bankers’ broad experience working across different countries and across a variety of industries to provide advice that helps them navigate risk while pursuing growth opportunities. Business owners and executives want a proactive partner that operates with their best interests in mind.

How can companies better position themselves for success and mitigate risk as they engage in international trade?

An important step is picking the right advisers, including accountants, legal counsel, and an experienced banker. Regarding the latter, it’s also important to find a bank that specializes in working with companies of similar size. Different banks have different targets — some cater their services to Fortune 500 companies, while others tend to focus more on small or middle-market companies. Companies can find that they’ve outgrown their current banking provider or that their global bank isn’t focused on businesses of their size or industry.

Finding the right partner that’s both capable and engaged is important to a company’s success. Companies that find they need to call their bank for ideas instead of their bank calling them with insights probably need to look around for another partner.

What common mistakes do companies that are interested but not yet engaged in international trade make that could be a setback?

Both small and very large companies can sometimes underestimate the risk associated with the countries that they’re dealing in. Dealing outside of the U.S. introduces new and unique risks that are easy for companies to overlook.

An example might be currency controls instituted by a foreign country that prohibit even a strong customer from remitting foreign payments, or nationalization of a foreign plant by a local government. Often cultural differences are overlooked, too, which can impact not only payment experiences but also a company’s ability to deploy a successful sales strategy in its target markets.

As a general rule, companies that perform the best tend to be those that don’t go it alone and that recruit help in assessing and mitigating risk, as well as assisting in developing sales strategies that reflect local practices and conditions. This allows companies to focus on what they do best, while leveraging the strength of their partners to be even more successful.

Insights Banking & Finance is brought to you by Huntington Bank

Steps you can take to improve, grow your business in 2020

The start of the year offers a good opportunity for business owners and executives to evaluate where their company is, where they want it to get to and then put a plan together to achieve their objectives. While 2019 was a strong year for businesses, economic and political factors could affect the landscape going forward. It’s important both to establish a plan to attack the market in the coming year and also re-evaluate and adjust that plan when circumstances change. Sometimes that process is aided by getting the input of key business partners.

“Companies and owners that put together a plan, execute that plan and find ways to work successfully with partners should be able to leverage favorable market conditions to grow their business,” says Kurt Kappa, Chief Lending Officer at First Federal Lakewood.

Smart Business spoke with Kappa about evaluation and planning strategies that can help companies unlock their potential in 2020.

What financing opportunities should business owners and executives consider and/or potentially act on in the coming year? 

When exploring financing opportunities for 2020, there are two areas business owners and executives may want to consider — their current cash position as well as utilizing debt. 

Companies should look at their cash position and how it sets them up for future growth. With capital as cheap as it is, growth can be funded via loans or lines of credit instead of cash. If a  company is cash positive at the moment, it is a good time to talk with your banker about tapping into a working line of credit.

On the flip side, debt in 2020 looks as if it will continue to be inexpensive, so it may be a good time to fund a business expansion, whether that’s through organic growth or through acquisitions. When it comes to the latter, inexpensive debt can be used to help fund an acquisition, but the high company valuations might mean it will take buyers time to find the right opportunity. 

What unique opportunities or conditions exist in the market and how could they affect a business? 

Many Northeast Ohio companies are entering succession planning and ownership transition periods. This is mostly because baby boomers who are in leadership or ownership positions have reached an age where they are looking to transition, either through succession planning or through a sale. For these owners, now is a good time to really evaluate which path is best: a sale of the business or by growing and bringing on other team members to run the business in their place. 

For those business owners who have been considering an exit, conditions in 2020 are favorable for selling. And given the high valuations, owners should be able to receive a good price for their business.

What conversations should business owners and executives have with their bankers this year as they try to make the most of 2020?

Business owners and executives should talk with their banker about all that is happening, and what they would like to happen, with their business — what their growth objectives are, what could hold back their growth and how they can navigate those obstacles to achieve their goals. 

It’s common for business owners to get so caught up in running the day-to-day operations of their business that they often struggle to step back and take a bigger-picture look at the organization and where it should be headed. Taking some time to talk with a banker can create the opportunity to have an in-depth conversation about the strategic vision, get some outside perspective on how they and their organization are currently set up to achieve it and build accountability into the plan.

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