Business owners today may understand that technology can be customized to streamline their internal processes. But exactly how that customization is realized may be unclear.
Software, platforms and applications evolve quickly, which can make finding the right technology intimidating. However, by partnering with the right solution provider, you can improve your current processes with technology that’s inherently scalable.
“Business owners are experts in their industry; they shouldn’t have to be experts on the technology solutions they bring into their company,” says Heather Stump, a business analyst and AIIM ECM Practitioner at Blue Technologies.
Smart Business spoke with Stump about available software, platforms and apps, and how to integrate them in your company.
In your experience, which software and platforms are the most useful?
The most prevalent office applications are the Microsoft Office programs, Word, Excel and Outlook. Other platforms integrate directly with these familiar interfaces to enhance them without replacing what employees currently use, or changing their day-to-day activities.
Imaging applications can be installed on your desktop or embedded in your multifunction printer, which can then:
- Convert documents, such as PDFs and images, to a Word or Excel file on the fly.
- Route documents throughout the enterprise to a shared folder, document management system or email account.
- Name documents at the time of the scan to save time on the back end.
Many document management systems can integrate directly with Outlook or hardware devices. Employees can store and retrieve documents without leaving the familiar email interface, and multifunction devices can allow employees to search, retrieve and print documents directly from a device.
Organizations typically have an accounting and/or a customer relationship management system, such as Salesforce or SharePoint. These systems are vital to any business, but they do require supporting materials to be useful. Technology solutions integrate with these programs to provide a comprehensive view of all necessary data and documentation, such as emails and customer correspondence, eliminating the need to search through multiple systems and file cabinets, reducing the burden on employees.
What are some must-have apps?
Many employees already have a smartphone or tablet, so more businesses are implementing a bring-your-own-device strategy. Most mobile integrations are not device specific and fall into the document or print management categories.
The most well-known document management mobile apps such as Google Docs, Dropbox or SkyDrive allow users to store and retrieve documents. Other apps allow you to take photos or scan from your mobile device, and then upload to the cloud or existing document management repositories. Advanced solutions allow employees to interact with workflow off-site, which facilitates continuity and productivity.
Hardware manufacturers now offer print management apps, so you can print from anywhere, whether on- or off-site. The files are held in a print cloud. The user can then authenticate themselves at any networked device, see their print queue and release the jobs when they’re ready. This helps reduce costs and improve information security — people aren’t as likely to leave confidential documents sitting around.
How can businesses find a provider to maintain, assess and upgrade technology?
Do your research and trust your instincts. Meet with providers and look at a variety of software packages to get an idea of the distinctions. One tip, on the manufacturer’s side, is to see who is spending money on research and development; only innovators survive in the tech industry.
Your solution provider should be assessing the technology quarterly or semi-annually to help you learn new features and functionalities. In addition, manufacturers usually release at least one upgrade and a few minor software fixes every year. Make sure you understand what your provider includes in the yearly maintenance of software or platforms. With due diligence and the right provider to support your software and provide training, you’ll better understand the value of your purchase. ●
Heather Stump is a business analyst and AIIM ECM Practitioner at Blue Technologies. Reach her at (216) 271-4800 or email@example.com.
Insights Technology is brought to you by Blue Technologies
Throughout 2013, companies expanded and took calculated risks, but the government’s actions — and its gridlock — continue to impact business leaders.
“There’s a lot going on within our midmarket client base that’s allowed them to expand their businesses, but the vast majority of our clients aren’t taking big financial risks because of the continued uncertainties,” says Tullus Miller, partner in charge of the San Francisco office of the accounting and business consulting firm Moss Adams LLP. “I hear a number of businesses talk about these issues.”
Smart Business spoke with Miller about the continuing concerns of companies, and how to be ready for 2014.
What are the top business concerns you’re hearing from CEOs and COOs?
Generally, there’s uncertainty about the economy and increased regulations, as well as concerns about the Affordable Care Act (ACA) and health care costs. Many companies are facing higher health insurance premiums and co-pays. If health insurance costs continue to rise, or the tax burden is too great because the ACA may have unintended consequences, some might consider options like health insurance captives.
Despite concerns surrounding tax and potential interest rate increases, the continued rancor between Congress and the White House, and a sluggish economy, there has been growth. Mergers and acquisitions, new operations opening in China and South America, capital market deals, initial public offerings, debt restructuring and private equity deals all have transpired in 2013. Businesses are taking financial risks, but on a smaller scale.
Looking ahead, what actions should business leaders consider?
Business leaders should look for more efficient tax solutions or structuring, such as tax deferral options. Arranging the deferral doesn’t avoid the tax — it just defers it to a different period or amortizes it. Another example is a better use of tax credits such as the California enterprise zone program, which has been revamped for 2014 and beyond.
Taxes have motivated some companies to open operations in more efficient tax states, such as Nevada or Texas, although workforce and client proximity factor in.
Organizations also are working on profitability improvement during slow growth periods, which relies primarily on being as efficient as possible — for example, by increasing accounts receivable terms to improve cash flow or initiating technology enhancements.
As the baby boomer generation ages, there are wealth transfer solutions and succession scenarios to consider for 2014 and beyond, which can create more efficient tax positions for wealthy families. High net worth individuals are limited in the amount of money they can transfer without being taxed. Wealth transfer strategies need to be considered well in advance of an individual’s retirement or transition out of the business.
What will higher interest rates mean, and how can businesses prepare?
The Federal Reserve has been buying $85 billion in bonds per month in an effort to keep rates low. Once the Fed decides to slow and then cease the buying program, interest rates could increase quickly. Putting inflation aside, as rates go up, so does the cost of borrowing, increasing the cost of doing business and the cost of goods and services. Consumers may have less discretionary income because they’re paying more interest on credit cards, student loans or home loans, if those have a variable rate.
Recent economic reports suggest that rates should stay down for 2014, possibly going up in 2015. Many companies have or are working on fixing debt, terming it out over a long period. Then, when rates rise, it won’t adversely affect their cost of borrowing.
Planning is very industry specific, but those who are ready will be much better off. ●
Your business may be the largest asset in your retirement portfolio, but converting it into an income resource for retirement takes planning to ensure it has value, even after you are no longer at the helm.
“It’s important to start with the end in mind. What are you trying to accomplish?” says Sabrina Lowell, CFP®, principal and COO at Mosaic Financial Partners.
Those using their business as a retirement asset need to decide if they want the business to continue independently after they retire, or if they want to sell it, she says. In either case, business owners must come up with the end game before figuring out how to get there.
Smart Business spoke with Lowell about being purposeful with business planning and recognizing how much lead time you need to accomplish your goals.
Why is it important to manage a business as a long-term asset?
If you’re looking to exit, whether through retirement or a sale, and you haven’t purposefully mapped out a plan in advance, your business may end up without as much value as you thought. Some things to consider are:
- The health of your customer base. Is your client base aging with you? This can be a concern if there’s a sole owner, or even a few owners of a similar age.
- Human capital. Do you have an aging set of employees? Have you been bringing in the next generation, mentoring employees as future leaders?
- Product offerings and innovation. Are your products and/or services evolving and relevant to the current market?
What must a business owner consider when preparing for an exit?
When you’re clear about your objectives, decision-making becomes much easier. As a business owner, think about what your goals are for the business long term. The goals should be simple and concise so that they can be used to test alternative decisions that arise during the years an exit plan often takes to implement. These objectives are often qualitative, such as:
- Sustain client service standards.
- Take care of employees.
- Maintain company culture and values.
- Further the industry.
How can you keep long-term planning from falling to the bottom of a to-do list?
Be purposeful about setting time aside to say: ‘What is my vision and how am I going to implement that plan?’ on an ongoing basis. Like any transition, it’s not easy. The more you can set up systems to help support that effort, the better.
There’s no hard-and-fast rule for how much time is needed. There is usually more work on the front end, before the plan just requires maintenance. Important, but not necessarily urgent, strategic planning can often fall to the bottom of the daily ‘to-do’ list. Setting aside 30 minutes or an hour each day to focus on the business can make the process more approachable.
Where can a quality financial adviser help?
A financial adviser can help determine your number — how much you need to get out of the business for retirement. This may give you more flexibility when structuring your exit. Perhaps you get some payment upfront and an ongoing income stream, rather than just payment upfront.
Your adviser will help you discover what the transition is going to look like, and how to begin preparing. It’s always difficult to make decisions around an asset when you have a personal, emotional connection. A financial adviser has an arm’s length perspective that can help with both the numbers and personal side of a succession plan. ●
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
Before year’s end, taxpayers need to talk with advisers about their personal tax situation — wages, interest income, dividend income, capital gains, pass-through income from a business and other deductions. This preliminary road map can be used to make appropriate decisions.
“Years ago, I went through a projection with a client. We didn’t move the needle on their taxes much, but the client’s wife said, ‘I feel so much better knowing in December exactly what’s going to happen in April,’” says Patricia Rubin, CPA, director of assurance services at SS&G.
By reflecting in December, taxpayers have time to plan ahead, she says.
Smart Business spoke with Rubin about maximizing year-end planning.
Alternative minimum tax (AMT) is always a big topic. How can you plan around it?
This year, Congress formalized and stabilized many AMT issues. You should do an annual calculation to determine whether AMT will apply to you. A taxpayer must calculate taxes using the regular method and then recalculate following AMT rules and pay the higher amount. AMT rules are similar to regular tax rules. However, under AMT certain items are not deductible in computing taxable income, such as state and local income taxes.
Certain taxpayers will find themselves in AMT every year, but 2014 could have different results as regular tax rates have increased.
How can you reduce taxes with year-end planning?
Donating appreciated stock to a charity is one option, and taxpayers can deduct this under either tax system. If you bought a share of stock for $1,000 that is now worth $10,000, the charity gets $10,000 and you don’t have to pay capital gains on the difference while also claiming a deduction for $10,000. There’s also charitable giving of cash and non-cash items. If you’re cleaning out your closet, make a list. You cannot deduct without specifics on the thrift shop value of donated items. You also can time payments of your state and local taxes — bunching them up and paying them in 2013, or deferring into 2014.
What are some new taxes this year?
These are a little harder to plan for, so consult with your adviser to understand if, and how, these taxes affect you. In addition to the higher tax rates, there is a new 3.8 percent Medicare tax on certain net investment income, as well as a 0.9 percent Medicare tax on earned income. Both of these new taxes apply only if the thresholds have been exceeded. The first year, you need to understand which items are subject to the tax.
In addition, there is a phase out of itemized deductions if your income exceeds the threshold amounts.
What year-end planning is available for a business owner working in the business?
The income of a business owner with an S Corporation, LLC or a partnership passes through to his or her individual return, making tax planning critical.
Make sure your retirement plan maximizes the value to you and your employees, to take advantage of planning opportunities. You can accrue what you’re going to fund into the plan in the current year and pay it next year.
Two depreciation items may be significant. Under Section 179 of the tax code, you can deduct purchases of property, plant and equipment up to $500,000. As the law stands, it drops down to $25,000 in 2014. Also, you still can get 50 percent bonus depreciation for new equipment, which is scheduled to sunset in 2014.
Other items to capture are a health insurance credit for those with less than 50 employees and a self-employed health insurance deduction, which might apply to a shareholder in a closely held company.
Overall, the promise of tax planning is to let you know what’s coming, properly plan for the appropriate deferral of income taxes and reduce your overall taxes. You may not have all three, but year-end tax planning always helps avoid surprises. ●
Insights Accounting & Consulting is brought to you by SS&G
Although some aspects of the Affordable Care Act remain uncertain, the act overall is driving the health care market to figure out ways to control costs and allow employers to continue to offer health plans, says Mark Haegele, director of sales and account management at HealthLink.
As a result, managed care companies are increasingly utilizing three tools —reference-based pricing, Domestic Centers of Excellence and narrow networks.
“Some of these concepts are still new, so an employer might tackle one thing at a time,” Haegele says. “Maybe you start with narrow networks, and then move into reference-based pricing or Domestic Centers of Excellence.”
Smart Business spoke to Haegele about how each strategy can drive down costs and the overutilization of health plans.
How does reference-based pricing work?
Within a managed care network, you identify facilities, procedures and/or services that have low costs and high quality, and then establish a plan design that drives plan members to them. If, for example, you’ve identified that
Provider A performs knee replacements for $5,000, then members who go to that provider have their costs covered at 100 percent. If a member goes to another more expensive provider, he or she is responsible for the difference. This schedule could cover a whole host of surgeries and procedures.
Reference-based pricing, which is cutting edge in both contracting and plan design, can have a major impact on costs.
What are Domestic Centers of Excellence?
With this model, you identify high-quality providers across the country to be the hub for a certain procedure type. For example, all transplants might go to the Mayo Clinic, while all knee, hip and shoulder replacements go to Mercy Springfield Missouri. The health plan promises to pay 100 percent for the procedure and the travel for the member and a caregiver, as opposed to just giving a deductible and coinsurance.
The value isn’t just with price points, but also aligning incentives. Providers are willing to offer preferred pricing based on the exclusivity and volume, and employers achieve savings on unit cost. In addition, unlike the traditional fee-for-service model, providers objectively review for appropriateness first. The contract includes a performance component to eliminate waste. So, Mercy, which performs 30 percent fewer back surgeries than the national average, keeps members from getting inappropriate surgeries.
Originally only used by large employers, this model has become more prevalent. Smaller employers can piggyback on either large employers or a managed care network that develops this for its entire block of business with specialized contracts.
How do narrow networks lower health costs?
Depending on your geography and population, you may be able to partner with your managed care network to customize your network. In a rural or smaller market, this may mean exclusively driving the members to one facility. In turn, typically the hospital will provide a better managed care contract.
You may get pushback from members who prefer one facility to another. The employer must convey that this is about looking at cost and quality to find the right facility, which then has an impact on premiums.
Narrow networks have been around for a while, but now managed care companies are starting to wire together narrow networks across a region to create a sub-network.
Can these strategies be used in conjunction with any type of health plan?
Although there is some overlap, you can use a combination of strategies, depending on your readiness for change. The difference is more of a degree of granularity — Domestic Centers of Excellence and reference-based pricing are broken down by procedures, while narrow networks are more geographic-centric.
Self-funded health insurance plans may use any of these tools. Fully insured carriers are now implementing narrow networks and referenced-based pricing. With the health exchanges, narrow networks should become more common as carriers look for ways to keep costs down. ●
Insights Health Care is brought to you by HealthLink
In today’s litigious society, people are filing more lawsuits and receiving larger judgments. Everyone needs to consider buying umbrella or excess liability insurance to protect their current and future assets against catastrophic loss.
“It is a financially sound idea for everybody to consider it, regardless of personal asset holdings,” says Erin Powers, CIC, assistant vice president at Momentous Insurance Brokerage, Inc. “The worst feeling is finding out at claim time that you could have had more protection if you had spent the extra few hundred dollars on an umbrella policy.”
Smart Business spoke with Powers about how to protect yourself with a personal umbrella policy.
Who needs to buy umbrella insurance?
Anyone with auto, homeowners or any other type of liability policy should consider umbrella insurance. We’re all exposed to claims and lawsuits that could jeopardize our current and future assets. An umbrella policy can protect against catastrophic (multi-million dollar) liability settlements.
Let’s say your dog bites a surgeon’s hand so severely he can no longer perform his job. Not only will the liability coverage pay for his medical costs, but it will also pay for his loss of wages. An umbrella policy will respond if your 16-year-old daughter crashes into a school bus, injuring or killing children, or if you injure someone with a golf ball. Another benefit of most umbrella policies is that there is coverage for legal defense costs outside of the excess liability limit.
Most auto and home carriers write no more than $500,000 or $1 million liability limits. An umbrella policy provides an additional layer of liability protection. Policy limits begin at $1 million and may be increased in increments of $1 million.
Is an umbrella the same as excess liability?
Umbrella and excess both provide additional coverage in excess of primary, but a true umbrella picks up exposures from the first dollar when no underlying insurance exists. Excess liability simply provides additional liability limits; coverage is not broadened. Many policies are called umbrella, but the contract wording says otherwise. Take time to understand what you’re buying.
What policy nuances are important to know?
The umbrella carrier will require you to maintain certain primary limits before triggering coverage. You’ll also want defense coverage to be outside of the limit of insurance, so defense costs won’t erode your limit. In addition, make sure you have worldwide coverage — some policies restrict coverage to the U.S. Family trusts or LLCs that own any tangible assets covered on the primary policies need to be included on the umbrella policy as the trust and/or LLC can be brought into the lawsuit.
Personal injury is also an important component to include. It covers things beyond bodily injuries, such as defamation of character, libel, slander, false arrest, wrongful eviction and violation of the right of privacy. With social media, everybody is putting opinions in writing. It’s an important exposure to cover, although some policies are starting to restrict Internet coverage.
What endorsements can help enhance your umbrella?
Typically, if there’s a claim, the insurance company will provide an attorney. A shadow defense provides an extra limit to bring on your own attorney to consult.
Some umbrellas include, by endorsement, employment practices liability, which protects you if a domestic employee sues for discrimination, sexual harassment or wrongful termination.
Another enhancement to consider is uninsured motorist coverage. A few companies can also include uninsured personal liability. With these coverages, you get the benefit of having your medical expenses paid, if the person who causes injury has inadequate or no liability coverage.
How do you know how much to buy?
Certain people are more at risk. Assess your lifestyle and re-evaluate with life changes. What kinds of things do you have, and what could potentially happen? Do you have parties at your house? Are you in the public eye? Do you have kids who are driving? Do you have a swimming pool?
Determining the proper limit is not an exact science. You can’t measure liability loss like a property loss. You want enough coverage to protect your assets, and maybe a little extra for peace of mind. ●
Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.
Accounting is the language of business. People use it to make decisions about the past and devise a plan to carry them forward. With the continuing emergence of fair value reporting on financial instruments, accounting no longer just looks back at what you paid, it values those assets today.
“Say you’re putting money into your 401(k). What if you didn’t know the current values? How do you evaluate your prior investment selections and how to move forward?” says Bryan Cartwright, financial services assurance partner at Moss Adams LLP.
“Likewise, if you’re on a company’s board of directors and you have no idea how much management is awarding in stock options because the options have no assigned value, it makes it hard to be an effective board member.”
Smart Business spoke with Cartwright about the increased requirements for fair value reporting.
How has fair value reporting intensified?
Privately-held and thinly-traded securities often have no observable market activity to provide current value information. Loans, bonds, companies, or preferred or common stock are, in increasing measure, being reported at fair value.
The Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) continue to drive accounting standards and requirements toward the use of fair value, rather than cost, as the basis of value for financial assets. They have gone from requiring companies to disclose fair value in the back of financial statements to including them in the statements with strong support from financial statement users.
The latest push is for companies to disclose the way they’ve ‘fair-valued’ the information for each class of security or asset, and the significant inputs or variables upon which the fair values hinge. For example, instead of simply reporting that a loan has a fair value of $1 million, the disclosures are providing supporting information about the ‘unobservable inputs’ used by management to determine that value, such as a discounted cash flow technique or an unobservable input for the discount rate such as ‘Libor plus 500 basis points.’
Does this just apply to public companies?
It applies to any company or organization reporting fair values for assets or liabilities on a recurring basis, including public and private commercial enterprises, or anyone with financial assets or liabilities on their balance sheets reported at fair value on a recurring basis.
The pressure for accuracy is mounting from the top down. The SEC has been taking action against board of directors and management that it feels haven’t taken fair reporting requirements seriously, or have shown indications of intentionally misstating values. This has been particularly true in investment management, where the SEC has jurisdiction over registered financial advisers. It has been looking into the policies and procedures used by these advisers when setting values for private-equity and other securities, which play so big a role in investment strategies used by pension and profit sharing fiduciaries.
What advantage does more fair value bring?
Regulatory authorities want fair valuations to be accurate, supportable, and based on market information when available. With better information, whether modeled (unobservable inputs) or market-based, people are more accountable for assets they use and deploy.
For example, in 2005, after nearly 10 years of delay, the value of employee stock options began to be recognized in income statements. Executives, board members and shareholders gained much better visibility into the real cost of this compensation, which heightened the understanding of their use. It’s widely believed that the migration to more balanced compensation packages emphasizing both short-term and long-term rewards were due in part to this change in accounting.
How should executives react to this trend?
Everybody can agree on what something costs, but not everyone always agrees on its fair value. Accordingly, you need to be ready to defend your approach. Companies are building systems to document how they select their chosen valuation techniques among alternatives. The work needs to incorporate validation concepts including using ‘look backs’ to determine if selected techniques and procedures are still appropriate. Based on feedback from the SEC and others, companies really need to focus on market-based information when selecting valuation techniques and determining valuation inputs — it’s becoming more of a science.
Whether fair values are determined with internal resources or outsourced, your company is ultimately responsible for the assigned values. Currently, it seems that regulators are showing higher thresholds for proving that the values you select are appropriate. You can acquire valuation models, but a model is only as good as its inputs. Someone in your organization must have the education and skill to understand valuation requirements and communicate your approach, even if you outsource the work.
Overall, fair value is improving financial reporting, although it’s certainly uncovering more differences of opinion and subjectivity than we are accustomed to dealing with. But as people begin to believe in the reliability of fair values, more decisions will be made based upon them, making them more important still. •
Bryan Cartwright is a financial services assurance partner at Moss Adams LLP. Reach him at (415) 677-8331 or firstname.lastname@example.org.
Insights Accounting & Consulting is brought to you by Moss Adams LLP
As a central control position for financial assets, family offices manage investments and trusts by preparing tax returns, handling bill pay and/or overseeing financial controls.
Floyd Trouten, a director of tax at SS&G, says families that use these private companies typically have an excess of $10 million in investable assets. However, no family office is alike because they are very customizable and offer a high level of service.
“A well-run family office minimizes taxes and maximizes cash flow to family members. It maximizes the amount of wealth that can pass from one generation to another. It provides a control point where assets are housed, managed and invested,” he says. “But the biggest thing is you can sleep well at night, knowing things are under control.”
Smart Business spoke with Trouten about how family offices work and why this might make sense for your family.
Why are family offices so different?
Each family has specific needs. Some may already have a third-party investment group that manages the money, so family members don’t care about investment advice if they are getting tax returns prepared. Other family offices include estate and tax consulting to maximize benefits to beneficiaries and minimize potential taxes.
With another type, the family may ask the financial advisers to be trustees. As the trustee of a family trust, the office may do bill pay and investment review. For example, if a granddaughter has an idea for an investment, it could be easier to have her bring it to the third party for review. The family office provides objective advice and lessens hurt feelings.
As another example, if a family member wants to buy into operating companies as a member of the board of directors, under the family office, the financial adviser might be asked: ‘Is this a good company to buy?’
In what areas do families with concentrated wealth typically fall short?
Some potential problems are having:
- No financial controls on what different family members can spend.
- Too much money not invested, and not earning anything.
- Investments so far spread out that you really don’t know what you have.
Another area to watch is bill pay. If a family member has the tendency to give to every charity that sends a request, the family office can provide guidance to the member regarding legitimate charities and charitable goals.
Many family assets may be flow-through entities — partnerships, trusts, LLCs or S corporations, which are taxed on an individual’s return. Family offices can help ensure there’s money for the appropriate tax payments as family members may have filing requirements in multiple states, as well as the U.S. and foreign countries.
What are some other ways families can utilize accountants through a family office?
If a patriarch or matriarch has sold a company for $100 million, for example, and wants to leave money for grandchildren and children, family office advisers can help ensure inheritances are fair and reasonable. It’s important to remember that fair doesn’t necessarily mean equal. Giving more to one child than another can create difficulties, but it may be for good reason, such as health, martial circumstances, etc. Combined legal and financial counsel can help you come to sound decisions.
In addition, you must take asset protection into account. If a beneficiary receives assets outright, he or she could have those threatened in a lawsuit, divorce or bankruptcy. A family office trust, administrated by a family member trustee and a third-party trust protector, safeguards assets from being awarded to another in a legal settlement.
Each family member’s individual needs can be so diverse that it may make sense to have separate trusts for each family member, which could be more easily administered from a central point. This scenario minimizes family disputes and provides individual privacy.
There are $46 trillion in assets housed in family offices today. If your family has complex tax return and financial scenarios, then it’s worth exploring whether you fit into this space. Find out more at the Family Office Association by visiting www.familyofficeassociation.com. ●
Insights Accounting & Consulting is brought to you by SS&G
Small Business Administration (SBA) financing has been around for a long time, but these loans are available to more business owners than ever due to recent program enhancements.
Your banker should be able to take you through the programs and eligibility requirements to see if an SBA loan fits your needs, says Tim Dixon, SBA program manager and senior vice president at FirstMerit Bank. And if you work with a preferred lender who has the authority to make decisions on behalf of the SBA, the SBA lending process can be straightforward.
“We do the heavy lifting for the client and try to make the SBA loan process look very much like any conventional business loan,” Dixon says.
Smart Business spoke with Dixon about SBA lending changes.
What traditionally has been covered by SBA lending?
The core SBA 7(a) lending programs can help when your company:
- Has been in business for a short time.
- Is tight on collateral or is leveraged.
- Has some particular industry risk.
- Cannot meet standard down payments.
- Needs extended amortization to better fit with cash flow.
The two main SBA loan programs are 7(a) and 504, which is done with an area Certified Development Company. The 7(a) loans have a broad range of eligible uses and can serve a variety of purposes — real estate, equipment, working capital, refinancing debt, financing a change in ownership, etc.
The 504 program, which typically has slightly larger loan amounts, focuses on economic development and expansion, and the job retention and creation that come along with it. There are just a handful of eligible purposes, such as real estate purchase and expansion, or purchasing heavy equipment that has a useful life of at least 10 years. And certain types of projects may be eligible for special consideration, including energy efficient projects or projects located in targeted economic development areas.
What SBA program changes are enabling more companies to receive larger loans?
Several years ago, the SBA expanded its role by increasing the size of loans that can be extended. The maximum aggregate exposure of SBA-guaranteed loans for standard SBA programs is $5 million. However, under the 504 loan program, you can go even higher in terms of total project amount. Say you’re buying real estate or doing a significant expansion, your total project could be as high as $12 million when you leverage all your dollars together. The bank could do a first mortgage loan, and the SBA would do a second mortgage financing with a long-term fixed rate, while the borrower puts some equity into the project.
At the same time, the SBA increased the size of businesses that can qualify for lending. What might have been considered a midsize company now qualifies for these ‘small business’ loans.
Another change became effective Oct. 1. The SBA authorized a waiver of the SBA guarantee fee on 7(a) loans of $150,000 or less. The waiver is very broad, just based on the loan’s dollar size. It can be used for any number of purposes, such as working capital, equipment, refinancing, etc. It’s really targeted at benefitting traditional small business owners at those loan amounts — helping grow Main Street. It runs through this fiscal year, or until Sept. 30, 2014.
What has been the impact of these enhancements on lending?
Some of the changes have been in place for a few years, and have really had an impact on increasing the number of loans.
In addition, the SBA has been busy since some of its major program changes, providing continued enhancements. The SBA is always looking at the underlying eligibility requirements to try to provide simplicity for banks and businesses.
Have any SBA loan programs been reduced?
Yes. There was a temporary program that expired Sept. 30, 2012. It allowed banks to use the 504 program to refinance eligible projects and debt. It locked in a good portion of the deal at low 10- or 20-year fixed-rate financing. The banking industry has been lobbying to have that program resurrected again. The program might return later this year or in 2014. ●
All opinions expressed herein are those of the authors/sources and do not necessarily reflect the views of FirstMerit Corporation.
Insights Banking & Finance is brought to you by FirstMerit Bank
Not all high net worth individuals started out that way; they’ve spent years building a business and career, slowly accumulating assets and wealth. Even though they have more items to insure and face different risks, they often don’t adjust their personal insurance to reflect their changing needs.
“They are so busy building a business, they often don’t take the time to adjust their coverage as their needs and circumstances have changed,” says Kevin Franczkowski, a client advisor at SeibertKeck Insurance Agency, Inc.
Most of these people would never go without necessary coverages on their business, but there can be major inadequacies with their personal insurance, he says.
Smart Business spoke with Franczkowski about where high net worth individuals need more or different types of insurance coverage.
What is the biggest area that high net worth individuals underinsure?
The biggest concern is liability. While it is upsetting to lose an expensive piece of jewelry, it generally will not ruin someone financially; a liability claim, however, can. With inadequate liability and/or umbrella coverage, one incident can affect the total wealth and earnings of an individual and their family.
If the individual sits on non-profit boards, or is involved with charity work, he or she needs to consider increasing his or her limits and supplementing coverage with an umbrella policy. If a non-profit is sued, it is common to name all the individual board members in the suit as well. Without the proper coverage, you could be footing the defense or judgment bill yourself.
For example: A high net worth individual sat on a youth athletic league’s board of directors, and a former coach sued all board members for improper dismissal. Thankfully he had a personal umbrella policy that covered him for liability resulting from unpaid or voluntary positions and paid for his entire defense.
Auto accidents are a common source of claims and can result in financial pain if you and your estate are not adequately covered. For example: An individual has a $1 million umbrella policy over a $250,000 per person liability limit with his automobile policy. Unfortunately, he or she had an accident in which a child was severely injured. The child’s care will more than likely exceed $5 million within 15 years; his or her estate, business, and earnings will all be at risk to cover this situation.
What problems do you see with homeowner’s policies?
Homeowners policies come with limitations on certain items like fur, jewelry, fine arts and firearms. These provided limits are not usually adequate for high net worth individuals. As individuals gather wealth, they tend to gather expensive items that with a standard policy have a very limited amount of coverage. It is important to review these items with your insurance agent to be sure the items are properly and fully covered. Collectibles and rare or unique items often require a separate policy, known as an Inland Marine Policy.
Making sure the values on your homeowner’s policy are correct, and ensuring you use insurance products that are designed for higher risk, will be extremely important in the event of a claim.
How should household help be covered?
If household help, such as a gardener, nanny, cleaner etc., doesn’t come from an established company, you need to pay workers’ compensation. This will protect you in case they are injured in your home. If the employee comes through a service company, ask for proof of coverage with a workers’ compensation certificate. It is also important to inquire with the company about background checks for anyone coming to work in your home to make sure there’s compatibility, experience and no other issues. Your insurance agent can assist you with determining if the company’s coverage will extend to the employee, or if you need to purchase your own policy for them.
A good agent will do a risk management audit, asking what you’ve got to protect and walking you through the different items you have to ensure there’s adequate coverage. By spending time with a qualified high net worth agent, you’ll know your assets and income are properly insured. ●
Kevin Franczkowski is a client advisor at SeibertKeck Insurance Agency, Inc. Reach him at (330) 867-3140 or email@example.com.
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