Align retirement plans with company goals to increase their effectiveness

When it comes to retirement plans, the mistake most plan sponsors make is not taking a comprehensive approach to plan design and management, an approach that incorporates the company’s goals into the goals of its retirement plan.

“Fifteen years ago, a company might have reached out to any financial adviser to set up a retirement plan, concerned mostly with the matching contribution,” says Robert Klug, regional executive at The Huntington Private Bank. “There might have been a general idea of what the company wanted to accomplish with a plan, but it likely didn’t think too deeply about the objectives relative to its participants or the company. That’s changing now.”

Today, it’s important that companies ask from the outset why they want a plan and what they hope they can achieve through it. Plans created without specific intentions will inevitably fall short in key areas. Companies could run into fiduciary governance issues, have a lackluster investment menu, poor participant engagement or have participants who are unable to realize the full benefits of the plan.

Companies could also run into challenges with administration, whether internally or externally with vendors, which can be costly to correct. That’s why it’s so important to put a lot of thought and attention into plan design from the start.

Smart Business spoke with Klug about purpose and design in retirement plans.

What services are available to help companies design the right plan for their organization?

More and more, companies are engaging with advisers who specialize in retirement plan design, even companies that have relatively small plans. That’s because it’s become such a complex proposition. Plan advisers can help guide companies through the myriad services available to sponsors to help them with a plan’s ongoing management.

How often should companies review their retirement plan and what should they look for to understand how well the plan is performing?

Plan sponsors should, at minimum, conduct a comprehensive annual plan review. Through it, companies should look over all of their fiduciary responsibilities to ensure they’ve been covered, and review the investment menu as well as participant engagement rates to make sure they’re getting the full use from the plan.

And while companies conduct their annual reviews, they should always look to see that the plans elements align with its goal. If the goal was adding participants, did that happen? Was the purpose a higher average balance? Good investment performance? A plan that’s easy to administer? What progress, if any, has been made toward those ends?

These reviews are also an opportunity to evaluate the retirement plan services providers. Assuming a company has plan goals that align with its overall corporate goals, it should be easy to see if the service providers are helping the company achieve those goals. If not, take a look at what else is out there.

How should companies go about setting retirement plan goals ahead of designing a plan?

Goals are unique to each company because they’re situational. For example, a manufacturing firm in a tight labor market might be looking for ways to keep the employees it’s trained who might get offers elsewhere. That company’s goals might be to increase enrollment and engagement to make sure employees understand all the benefits it offers.

A small professional services firm, on the other hand, might find it more effective to improve the average balance of its retirement benefits.

There are advisers who have experience designing retirement plans for companies in specific industries. That’s important because retirement plans aren’t just a product to be bought and sold. They’re a benefit that needs a thoughtful approach.

Plan sponsors are responsible for making sure that all facets of the plan get the necessary attention they require. If a plan sponsor isn’t sure they’re getting everything covered, they should engage with an adviser, even if it’s just to get a second look to validate that everything is in order.

Insights Banking & Finance is brought to you by Huntington Bank

You’ve been named executor of your family’s estate. Now what?

Losing a loved one is difficult. Aside from the overwhelming grief that comes with loss, many families are often faced with executing the deceased’s final wishes. To make fulfilling their wishes easier, sometimes people, before their death, will name an estate executor.

While it’s an honor for someone to entrust you with carrying out their final wishes, if you’re a business owner who has been named executor of an estate, you may want to first consider whether you’re up to the task.

“Being an executor is a lot of work,” says Northwest Bank Trust Officer Lisa Arnoczky. “You should understand what it entails before you agree to take on the responsibility because the process of settling an estate can take up to a year. Business owners need to prepare to be in it for the duration before getting involved.”

Smart Business spoke with Arnoczky about what you should expect after you’ve been named the executor of someone’s estate.

What does being named an executor of an estate mean?
Being named executor of an estate means you help carry out the deceased’s wishes laid out in their last will and testament. Family members are usually tasked with this request because they’re closest to the deceased.

If you’re familiar with the decedent’s finances, handling their affairs after their death should be a fairly seamless event. However, if you’re not familiar with them, you could be faced with duties you may not know how to carry out, like untangling their investments, locating family members who may be entitled to an inheritance, finalizing their income taxes, navigating the legal system and paying off their final debts.

You should give these duties some careful consideration, especially as a business owner. Before taking on the role, ask yourself: Do you have the manpower available to step in while you handle your loved one’s final affairs? Will your business suffer if you take on the responsibility of being executor? The answers should give you a sense of whether you’re really able to take on the task.

Are executors personally responsible for outstanding debts of an estate?
If you run your own business, the possibility of taking on more debt can be overwhelming. Under normal circumstances, however, executors aren’t personally responsible for the decedent’s debts. That’s not to say there aren’t some exceptions.

In cases where estate assets won’t cover all of the deceased’s financial obligations, some debts must take priority. Each state specifies which creditors have priority. If you don’t follow these rules, you may end up personally liable for that debt. You may also run the risk of being sued if one of the decedent’s beneficiaries tries to contest the will.

If I’m named executor, do I have to serve or can I decline?
If you’re named as executor and don’t wish to serve, you can decline. Usually, wills appoint an alternate executor if the primary executor is unable or unwilling to serve. If all the named executors wish to decline the responsibility, they can petition the court to name a bank as the executor.

I’m busy running my business but still wish to serve. Can I seek outside help to settle an estate?
Absolutely. In fact, it’s highly recommended. Your loved one doesn’t want you to jeopardize your livelihood or monopolize your time when you have a business to run. To keep your business top of mind while still serving in an executor capacity, you can enlist the help of professionals like the trust department at your bank, an attorney and an accountant to help navigate the financial and legal tasks. The fees for these services are generally paid from the estate.

Serving as executor of an estate can be a demanding and complicated job. Not everyone is suited for the task. You know your business better than anyone else and will ultimately know whether or not taking on the responsibility of being an executor is right for you.

Only Deposit Products Offered by Northwest Bank are Member FDIC. Nothing in this article should be construed as legal or tax advice. You should consult an attorney or tax professional  with any legal or tax questions.

Insights Banking & Finance is brought to you by Northwest Bank

How growing companies can effectively give back to the community

Companies that give back through philanthropy and volunteerism strengthen the communities in which their employees and partners live and work.

But for growing companies, fitting community giving into their go-to-market plan means ensuring resources are being allocated to the right organizations, and for the right reasons.

Smart Business spoke with Jon Park, chairman and CEO of Westfield Bank, about community giving strategies for growing companies.

How does a company determine where it should devote its philanthropic efforts?

Companies should first look to align their giving with their areas of focus, taking into account their resources and capabilities.

Aim to address three or four general areas of focus. Develop criteria for support to determine who to support and why their mission fits with the mission of the company.

Companies that are already supporting organizations and causes in their communities should take an inventory of their giving and discuss the efforts internally. Look closely at where money and time are being allocated and whether the organization — employees, management and leadership — all still feel that the causes being supported still align with the company’s values and interests. This will help the company decide how it will move forward with its giving and volunteerism.

How should companies track their giving?

It’s important for companies to track the dollars they spend on community outreach. The bigger the gift, the more the company should dial in on the efficacy and performance of the organizations receiving the money — smaller, one-time donations likely don’t need to be tracked, or at least not as closely.

Larger gifts should come with definitions of the scope of use for the donation, as well as metrics the organization will use to measure as it allocates those funds. Assign an employee to stay engaged with the organization and monitor its performance. It’s not always exact, but it makes clear that there are expectations for results and should raise the bar of performance.

As part of its measurements, companies should look at how much of what they give to an organization goes to programming and how much goes to its administration. Companies need to make their own determinations regarding their comfort level with the percentage that goes to each.

How should companies measure the return on their philanthropic investments?

It’s difficult to measure a direct return on donations. There are, however, compelling intangibles that can be tracked, such as how well the connection between the company and organization is promoting and reinforcing the company’s brand and image with customers and prospects.

When it’s determined that the company’s donations have been effective, consider giving more. Those organizations that underperform expectations should receive less.

How can companies ensure that giving and growth coexist?

Set a percentage of income that the company is willing to give. Allocate the money as part of the budgeting process and set it aside.
At the same time, urge employees to volunteer and actively support civic and social organizations. Encourage them to not just participate, but to take leadership roles within those organizations.

Consider granting employees paid time off for community volunteer efforts. That has the twofold effect of boosting the company’s engagement with community organizations while also increasing employee morale. It’s especially important in growing companies where employees are often working hard and might not have the free time to participate in a meaningful way. Giving employees time off for volunteerism also sends a strong signal of the company’s commitment to community involvement.

How should companies talk about their philanthropy?

Companies should share their efforts through social media, taking pictures and posting them as they work in the communities. It builds awareness in the community of a company’s values while also promoting a culture of giving, which can attract employees.

Insights Banking & Finance is brought to you by Westfield Bank

Take a holistic approach to wealth management for optimum outcome

When it comes to wealth management, business owners often spend so much time managing their business that their personal affairs get overlooked or become stale.

“They don’t have a personal CFO to nudge them to keep everything up to date and to seek the best returns as they do on the business side,” says Denise M. Penz, executive director of wealth management at Home Savings Bank. “This is where having an advisor who knows both sides of the equation for the individual can be a huge benefit.”

Conversely, she says sometimes owners are very good at working with an advisor to keep their personal funds invested, but they have large balances of business assets not being advised, which means no one is working to ensure those assets are yielding an appropriate return for the business.

“Both sides need to be equal priorities to be well balanced and maximize value,” she says.

Smart Business spoke with Penz about the intersection of personal and business wealth management, and what business owners tend to overlook.

What should business owners do to capitalize on their financial position today to ensure a strong financial future when they exit their business?

Working with an advisor who knows the owner’s goal for the business and how that matches with the owner’s personal goals and time frame is imperative.

In order to maximize the value of the business, and do so within a time frame that enables the owner to pass the business to a successor or sell the business before retirement, goals must be set and business and personal funds must be appropriately invested. If a business owner does not work to keep both invested and in sync with their goals, they can find themselves not prepared for their endgame.

What are some strategies or wealth management products that business owners should consider?

Maximizing wealth is as much about the advisory services as it is the product. Of course, retirement plans are essential, using either individual or qualified plans (or a combination), as well as portfolio management that looks broadly to identify opportunities, risks and returns.

It’s important to give an advisor full view of the investor’s assets and finances. Even those who are using multiple investment professionals are best served when one is the ‘quarterback’ who ensures that the rest of the advisory team is using their strengths to maximize return. So many investors believe that diversification is only about having multiple advisors. However, many times that leads to overlap, with team members buying many of the same securities. True diversification, then, is not being achieved.

In what ways can a bank help a business owner maximize his or her wealth and prepare for a secure financial future?

Banks are able to be holistic in their approach, offering deposit products, loans, investment vehicles and expertise. This enables the advisor to monitor the business and personal balance sheets, and take advantage of the markets when possible.

Having an eye on both balance sheets and income statements is a must, and working with an advisor is the best way to accomplish this. At the same time, an advisor can only be effective if he or she has a full understanding of the business owner’s goals.

Business owners should take a moment to decide who their quarterback is and then empower that person by sharing goals, time horizons, business strategies and needs, as well as their personal risk tolerance. The advisor can then craft the ever-evolving plan that is needed to achieve success in the business owner’s business and personal financial future.

Insights Banking & Finance is brought to you by Home Savings Bank

Why business owners should consider ESOPs when exiting their business

Every privately held company, whether owned by individuals, a family or private equity firm, must go through ownership transition at some point. When the time comes, an owner has several options: create liquidity via a leverage recapitalization using a debt-funded dividend to owners; sell control to a strategic or financial buyer; or sell a minority or majority stake of the company to an Employee Stock Ownership Plan (ESOP).

“An ESOP is a qualified retirement plan designed to give employees an opportunity to own employer stock,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “ESOPs are the only retirement plan allowed to borrow money to purchase employer stock. Once purchased, the employer stock is allocated to accounts for individual participants so that, when they retire, they can either receive cash or shares, which are then sold back to the ESOP.”

Altman says an ESOP is considered a Qualified Defined Contribution Retirement Plan that is invested primarily in company stock. It’s a flexible tool for owners to sell all or part of a privately held business.

“In this arrangement, the business owner controls the timing and extent of his or her exit, but may still maintain company control or use the tax advantages to help fund its sale.”

Smart Business spoke with Altman about ESOP viable options and potential benefits the structure provides owners and their companies.

What are the characteristics of companies that are typically found to use ESOPs successfully?

ESOP plans work well for companies with:

  • Strong cash flow.
  • A history of stable sales and profits.
  • Taxable income.
  • A capable management team in place that will remain after the sale.
  • An annual payroll of $1 million or more.
  • An owner who has a significant portion of his or her net worth invested in the value of the business.
  • Valuable employees.

Industries considered suitable for ESOPs include:

  • Manufacturing.
  • Financial Services.
  • Construction.
  • Professional Services.
  • Wholesale Trade and Distribution.

What advantages does transferring ownership to an ESOP offer?

Significant tax advantages come with ESOP ownership as selling to an ESOP is a tax advantaged transfer of ownership. The seller’s proceeds can potentially be tax-free via 1042 rollover. There are income and estate tax savings for sellers, management and the company. If the business is structured as a 100 percent ESOP-owned S-Corp., the company will not pay federal income tax.

Also, an ESOP can deduct the transaction price over time, enhancing cash flow and improving credit metrics.

Among the advantages to a seller when transferring ownership to an ESOP is liquidity — the seller gets more money after tax for the sale of closely held stock than for the sale of assets to a third party. The seller enjoys a rate of return via the seller notes, which is far superior to any return available on an alternative investment with fully understood risk and within the seller’s control to manage.

Selling to an ESOP offers flexibility as an owner may sell between 30 to 100 percent of the shares either all at once or gradually over time to accommodate multiple seller exit scenarios. It also creates the option for the seller to maintain control over his or her company, or allow the previous management team to maintain control and management of the company. Warrants and stock appreciation rights may be used to provide incentives to key managers.

How does the transition to an ESOP affect the employees who remain at the company?

There are indications that transitioning to an ESOP improves employee performance as a result of having an ownership interest in company and the accompanying enhanced retirement benefits.

ESOPs can provide advantages to owners transitioning out of their companies, as well as employees. For the right companies, it can be worthwhile to explore an ESOP option.

Insights Banking & Finance is brought to you by Huntington Bank

It’s a good time to borrow, but let prudence be your guide

There has been very strong borrowing demand and activity across banking institutions recently, says Joseph Bilinovich, senior vice president and market team leader at Westfield Bank.

“When I talk with other bankers, it seems they’re all chasing deposits to fund loans,” he says. “Borrowing demand is strong and consumer confidence is high.”

That’s a welcome change coming out of the Great Recession, which had a terrible effect on the finances of people and businesses. Since then, confidence has returned and that’s led, especially in the past few years, to a loosening of the purse strings.

While optimism is high, there is uncertainty regarding the future, which has some businesses tempering their approach.

Smart Business spoke with Bilinovich about borrowing strategies in a high-confidence market.

What are the trends in the market that are affecting businesses’ current outlook?
The positive effect of the current borrowing environment is that confidence and optimism are prompting businesses to make needed investments. Many consumers, borrowers and businesses have learned from the last recession that to weather any future economic turbulence, they need to be more liquid and significantly reduce indebtedness.

Confidence is undoubtedly high, but it’s contrasted somewhat with apprehension. Enthusiasm has been tempered by tariffs, which are driving up costs for some businesses and creating uncertainty. There’s also the thought that the U.S. is overdue for a recession, which some are forecasting could manifest in 2019.

How is this outlook affecting borrowing trends?
Businesses are acting with cautious optimism. Demand for debt is strong, but borrowers are approaching things with a little more prudence than in the past.

There’s a tendency for companies to be more liquid and take more time to make capital purchases. They’re also deleveraging to improve their cash position.

There are investments in new equipment and expansions, but companies now tend to use cash for those transactions. This is an effort to keep their liabilities lower, reducing their risk and keeping their balance sheets strong.

Companies are also borrowing from their owners or principals as they pursue expansion. Because there is currently more personal cash in companies, what’s being earned on deposits versus what would be spent on loans make it, in some cases, a better decision to put that money directly back into the company.

Borrowing is still a good option, but many companies are in a position to use cash because the yield on the reserves they’ve built over the years is ample.

The interest rate environment is also getting more attention as the Federal Reserve continues its trend of incremental rate increases. This is influencing some to lock in rates through longer-term fixed-rate products and forgo floating rates. Borrowers that have loans maturing or rates that are adjusting are looking to address that now rather than later as many expect that rates will be higher.

What should companies consider before taking on debt to fund projects?
Long-term fixed-rate debt is a safe bet at the moment as it offers some protections from a cash flow standpoint. However, companies considering borrowing should be wary of rising costs in the market associated with the labor shortage and material costs.

It could be more expensive to build or buy a building than before, and that could mean those costs won’t translate into value. Closely evaluate any major expenditures with CPAs and financial advisers to determine the risk versus reward.

In general, market trends are moving in a positive direction, but there is good reason to be cautious.

Companies can insulate themselves by building cash reserves and not over leveraging. Keep an eye on the market, particularly on the aspects that impact the business directly. By avoiding the mistakes of the past, companies should be positioned to weather a recession, should one come, better than the last time.

Insights Banking & Finance is brought to you by Westfield Bank

Businesses can get a big borrowing boost from unitranche debt

For years, the market has enjoyed low interest rates. Capital has been very cheap, which has been good for loan-making banks. It’s also prompted nonbank financial institutions — credit and hedge funds, business development companies — to enter the lending game.

Shielded by the regulations that govern banks, nonbank financial institutions are bolstering debt multiples for companies looking to go all-in on transformational purchases through a product called unitranche debt. This solution links lenders behind the scenes to offer borrowers a single loan rather than multiple loans within a capital structure. It’s targeting the middle market, giving companies in this class a lot more capital to put to work, but only when the situation calls for it.

“Unitranche is not a solution for every borrower or every situation,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “It’s on the spectrum of solutions for middle-market borrowers.”

Smart Business spoke with Altman about unitranche debt — what it is, when it’s used and what to look for from a lender.

How does unitranche debt work?

In a unitranche structure, there are senior lenders, often a bank, and subordinate junior lenders, usually nonbank financial institutions, that partner together in a capital structure. The bank provides the working capital solution while the nonbank or bank provides the necessary term debt (senior and junior combination). The multiple capital providers are unified in a debt arrangement with a borrower under one credit agreement, one payment schedule and one interest rate, but can offer many times the debt of a single provider.

While the structure provides more leverage than borrowers can get with a bank alone, it also gives borrowers the same protections they get when borrowing from a bank. And speed of transaction is improved because the structure inherently reduces the number of decision-makers in the process.

How is unitranche debt used?

It has been and remains an attractive and prevalent financial structure within the middle market. As the managers of early unitranche funds have shown that they can effectively manage a middle-market credit portfolio, their funds are getting larger and moving upmarket — whereas unitranche loans had been commonly sized at $25 million to $50 million, it’s now common to find structures of $50 million to $100 million plus.

Unitranche debt is often used for large acquisitions for which maximum leverage is required. These are typically transformative acquisitions that require the acquirer to put forth the highest possible bid.

What should borrowers know about unitranche debt before taking it on?

In a unitranche structure, borrowers have credit documents with a single lender, but they don’t necessarily know what’s going on with the subordinate lenders behind the scenes. There is the risk that the unitranche will close on its entire capital structure and break into pieces without the borrower having any insight. Also, one of the lenders in the unitranche could get bought or decide it doesn’t want to lend in that industry, which might disrupt the agreement. It’s important to have good counsel in place to help mitigate risk in a unitranche deal.

Also, while banks are relationship lenders, unitranche debt arrangements are primarily credit driven, so any considerations that might be made based on a long-standing relationship and the good faith it’s created between the lender and borrower typically doesn’t carry much weight.

It’s prudent to note that it remains to be seen how unitranche structures perform in a distressed credit market. There’s limited precedent for these scenarios.

Otherwise, credit issues are credit issues, regardless of the structure. Failure to make payments and covenant violations will disrupt a unitranche borrowing agreement like it would any lending agreement.

What should borrowers look for in a lender?

The starting point to determine the best debt product for the situation is with a banker. Businesses should discuss their plans and work with their banker to determine the best options. If unitranche debt is the right fit, it’s the banker who will find the best nonbank partners to help with the deal.

Insights Banking & Finance is brought to you by Huntington Bank

It’s a good time to borrow, but let prudence be your guide

There has been very strong borrowing demand and activity across banking institutions recently, says Bill Schumacher, senior vice president and market leader at Westfield Bank.

“When I talk with other bankers, it seems they’re all chasing deposits to fund loans,” he says. “Borrowing demand is strong and consumer confidence is high.”

That’s a welcome change coming out of the Great Recession, which had a terrible effect on the finances of people and businesses. Since then, confidence has returned and that’s led, especially in the past few years, to a loosening of the purse strings.

While optimism is high, there is uncertainty regarding the future, which has some businesses tempering their approach.

Smart Business spoke with Schumacher about borrowing strategies in a high-confidence market.

What are the trends in the market that are affecting businesses’ current outlook?

The positive effect of the current borrowing environment is that confidence and optimism are prompting businesses to make needed investments. Many consumers, borrowers and businesses have learned from the last recession that to weather any future economic turbulence, they need to be more liquid and significantly reduce indebtedness.

Confidence is undoubtedly high, but it’s contrasted somewhat with apprehension. Enthusiasm has been tempered by tariffs, which are driving up costs for some businesses and creating uncertainty. There’s also the thought that the U.S. is overdue for a recession, which some are forecasting could manifest in 2019.

How is this outlook affecting borrowing trends?

Businesses are acting with cautious optimism. Demand for debt is strong, but borrowers are approaching things with a little more prudence than in the past.

There’s a tendency for companies to be more liquid and take more time to make capital purchases. They’re also deleveraging to improve their cash position.

There are investments in new equipment and expansions, but companies now tend to use cash for those transactions. This is an effort to keep their liabilities lower, reducing their risk and keeping their balance sheets strong.

Companies are also borrowing from their owners or principals as they pursue expansion. Because there is currently more personal cash in companies, what’s being earned on deposits vs. what would be spent on loans make it, in some cases, a better decision to put that money directly back into the company. Borrowing is still a good option, but many companies are in a position to use cash because the yield on the reserves they’ve built over the years is ample.

The interest rate environment is also getting more attention as the Federal Reserve continues its trend of incremental rate increases. This is influencing some to lock in rates through longer-term fixed-rate products and forgo floating rates. Borrowers that have loans maturing or rates that are adjusting are looking to address that now rather than later as many expect that rates will be higher.

What should companies consider before taking on debt to fund projects?

Long-term fixed-rate debt is a safe bet at the moment as it offers some protections from a cash flow standpoint. However, companies considering borrowing should be wary of rising costs in the market associated with the labor shortage and material costs. It could be more expensive to build or buy a building than before, and that could mean those costs won’t translate into value. Closely evaluate any major expenditures with CPAs and financial advisers to determine the risk vs. reward.

In general, market trends are moving in a positive direction, but there is good reason to be cautious. Companies can insulate themselves by building cash reserves and not over leveraging. Keep an eye on the market, particularly on the aspects that impact the business directly. By avoiding the mistakes of the past, companies should be positioned to weather a recession, should one come, better than the last time.

Insights Banking & Finance is brought to you by Westfield Bank

Tips for self-employed small business owners on purchasing a home

Buying a home can be overwhelming for anyone, especially when it’s the first time going through the process.

For small business owners — those who, in the eyes of a lender, are considered self-employed — not only can this feeling be amplified because of the extra work, but there may be additional hurdles to overcome throughout the home-buying process.

“Not only do small business owners have to worry about managing the daily operations of their business, but they also have to go through the process of looking for the right home and applying for a mortgage, which can be a challenge because of the higher burden of proof of income,” says Spencer Reid, office manager for Northwest Bank.

However, if you know what to expect before you begin the lending process, from application to closing, the process can be smooth.

Smart Business spoke with Reid about what small business owners can expect during the mortgage process and some tips to make it a little less stressful.

What are lenders looking for from a self-employed business owner who wants to purchase a home?
Lenders verify the income and credit of a self-employed small business owner much the same way they do for any borrower. The self-employed, however, need to provide additional documentation when they start the lending process. This includes two years of personal tax returns and information about any business entity for which they have an ownership stake of 25 percent or more.

Buying a home is a big step, and lenders will expect borrowers to prove that they can take on the responsibility just like anyone else. This includes signing a purchase agreement, providing proper documentation and going through the home appraisal process.

How long does a small business owner need to be self-employed to get a mortgage?
Most lenders are going to want to see a small business owner who has at least a two-year history of self-employed income. Typical salaried jobs can still be considered to help verify income if the business owner works more than one job and the income from that job is sufficient to sustain mortgage payments.

In what ways does the mortgage process differ for a small business owner from the traditional lending process of someone with a salaried position?
The mortgage process is very similar between a self-employed small business owner and a salaried employee. There are, however, some key differences.

First is the amount of documentation that may be required. A small business owner may own or operate multiple entities. In that case, the lender will want to see tax returns for each. Those who have a good filing system for managing their business documents shouldn’t run into any major issues.

What should small business owners expect from their lender throughout the home buying process?
A good lender is willing to make the process as easy as possible through transparency and open communication. Business owners should expect their lender to keep them updated on the progress of their loan and be a knowledgeable, trusted source of information when there are questions. Establishing a relationship with a lender early on is always a good idea because they’ll be the borrower’s advocate throughout the process.

Buying a home is one of the most significant purchases most people ever make. That’s why it’s important that the process is as smooth as possible. Business owners need to be able to continue to focus on running their business. If they’re prepared and have the right banker on their side, becoming a homeowner can be an exciting and enjoyable experience.

Northwest Bank is Member FDIC. Equal Housing Lender. NMLS #419814

Insights Banking & Finance is brought to you by Northwest Bank

How a long-term relationship with a banker facilitates business longevity

Among the keys to business longevity is getting good, sound advice. While there are many sources of advice, having a trusted banker for guidance is a benefit to any company.

“A good relationship with a banker offers business owners a connection to someone who understands their business, the financing options available and the market, and can ultimately serve as a guide not only when times are good, but also through challenging times,” says Matthew Berthold, executive vice president and chief operating officer at Westfield Bank.

Bankers, he says, learn from the experiences of their clients. That gives them knowledge of broader trends and approaches to opportunities in the market that they can then share, helping business owners grow.

Smart Business spoke with Berthold about the keys to business longevity and the benefits of a long-term relationship with a banker.

What, generally, are the keys to a business’s longevity?
It’s important for growing companies to understand the indicators that influence their success. These indicators, which are unique to each industry and each business, give companies a sense of the level of risk they face and their performance against industry or internal benchmarks.

Companies also need to understand their competition and what is needed to be competitive among them. For instance, if technology is having an impact on a company’s sector, that technology should be researched, and if applicable, incorporated and built upon, in order to keep up or stay ahead of the competition.

But a key ingredient to success is people. It’s critical that companies have the right people in the right positions. Always work on building your talent pipeline.

In that same vein, succession planning is central to a company’s continued success. Whether a plan is created internally or with the help of outside advisers, companies need to have people ready to advance within the company and help it grow. It also means having a plan to replace someone who leaves so there are no setbacks in the company’s strategic plans.

Who do the more successful businesses turn to for advice?
In addition to consultants who may be brought on because of the expertise they bring to a specific project, companies often put tough decisions before an advisory board.

These boards are comprised of business leaders, often from companies outside of their industry, who have a pulse on the market, offer a different perspective and who understand the business’s needs. An advisory board can help companies understand the broader market and serve as a source of advice on the best path through tough challenges and growth.

How do established companies use bank financing successfully?
Determining the best way to fund your business is paramount. Bank financing is an effective way for companies to grow their business. Successful companies have an understanding of their financial needs and the options available to them.

It’s unfortunate to see companies locked into repayment terms that impede their ability to grow. It’s an error that can be avoided if owners are willing to talk through their needs with a banker to find the best solutions for the long term.

Business owners understand their business, its mission and products very well, but not all of them understand the best way to finance their company’s initiatives or special projects. This is where a partnership with a bank becomes critically important. Businesses with a strong banking relationship can lean on their banker to determine how best to structure loans, or if a loan is even the best way to finance a project.

What is the benefit of a long-term relationship between a business and a bank?
It can be frustrating for business owners to tell their company’s story over and over if they switch banks or get assigned a new banker at a bank plagued by high turnover. By having a consistent banker working alongside the business owner throughout the company’s life cycle, the business owner only needs to update the banker as things change. It’s one less thing for business owners to think about as they work to grow their company for the long term.

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