How to better prepare for changes in the dynamics of your family business

Small and midsize businesses are particularly vulnerable to life altering changes. Successful business leaders include contingency plans in their business for such events. However, certain business disruptions — serious injury or disability to key personnel, loss of a spouse or other unexpected “life altering” events — may come as a surprise, especially in a family business.

“Having had the important conversations ahead of time, you are better prepared to deal with significant changes when they occur within your business,” says Betty Uribe, Ed.D., Executive Vice President at California Bank & Trust.

“I have personally witnessed during this economic downturn that the businesses that weather the storms are the ones that planned for change ahead of time and remained flexible to changes as they came,” she says.

Smart Business spoke with Uribe about key points to remember when there are changes in the dynamics of a family business.

Why can these kinds of disruptions have such an impact on family business?

People do not plan for life change. We think we are going to live forever. We think our business is going to last forever. We think our partners are going to be our partners forever. We think our customers are going to be our customers forever.

Normally a business leader is able to keep personal issues separate from the organization’s operations. But during a divorce, for example, if both individuals are involved in the company, whether in day-to-day management or not, such change begins to infiltrate the business. This, in turn, affects the decision-making and the future of the business, and has an impact on employees.

How does emotion play into these kinds of situations?

You have to try to remove emotions from the decisions you make about your business, which is difficult for any business owner — family business or not. The owner has created the business from his or her sweat and tears, so it becomes almost like his or her child.

In addition, changes in a family-owned business can be harder because of the emotional ties to the business. You do not necessarily treat a family member as an employee and in doing so, instead of helping him or her grow, you may end up enabling weaknesses.

What planning would you recommend family business owners make prior to changes?

As a smart business owner, plan before emotion and turmoil kicks in. Create a board of directors that can deliver objective third-party feedback. Consider including your banker, CPA, business attorney, insurance agent, etc., in regular business planning and strategy meetings.

An independent board can help put together a business strategy, which includes areas such as business transfer and contingency plans. You know in case of fire to take the stairs and go out the back door, so why wouldn’t you adopt contingency plans for your company?

By establishing plans and controls in advance, you are in a better position when disruption occurs. During a divorce, one of the first things an attorney will say is to keep your children out of the conversation and decision-making. So, treat your business like that child and keep business operations separate.

The same thing goes for succession planning. You need objective opinions, because the fact that your child is a competent individual and business owner does not always make him or her the best successor to manage your business. The chosen successor must agree with your vision for the business, in order to truly preserve your legacy.

You may not be able to plan for everything in your business but having a plan in place allows you to proceed with minimal disruption. That plan may involve limiting the number of family members in management, or turning to selected professionals on your board in decision-making roles so if your children suddenly have to step in and take over the management of the company, they will have the appropriate assistance in place to help them navigate complex changes.

Preparation is the best way to avoid disruption. Planning is essential to insure your business lives on from generation to generation. ●

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How commercial card creates efficiency for purchasing processes

Commercial card, a program that is sometimes called purchasing, travel or fleet card, has become a hot product as companies realize how it can create efficiencies within their organization.

Commercial card has been around for a while, but businesses were leery of issuing employees credit cards that could lead to fraud and misuse, says Veenindra J. Singh, first vice president and treasury management consultant in the Corporate Services Division at California Bank & Trust.

Today, commercial card not only reduces internal costs when it comes to purchasing practices, but it also — unlike business credit cards — offers upfront controls on usage with a very robust reporting system that captures data, allows automated postings and so forth.

“There is more acceptance because companies have realized that the product has evolved,” Singh says. “It makes sense for a lot of companies to start looking at putting a program such as this in place.”

Smart Business spoke with Singh about how commercial card can benefit your organization.

How does commercial card create efficiency and reduce internal costs?

Typically 80 percent of business purchasing is below a certain dollar amount, and the remaining 20 percent is high-end purchases. However, the approval process for both is usually the same, whether you’re buying a box of pens or a $10,000 piece of software.

With commercial card, you set a benchmark, and then staff uses a card to make all purchases under that limit without layers of approval. Higher purchases go through the normal approval process, and staff still utilizes cards to avoid processes like invoicing, purchase orders, etc.

What about other benefits like upfront controls and robust reporting?

With upfront controls, a company can issue cards to different employees and each one can be restricted as far as usage. For example, if you’ve issued cards to a maintenance group, then those cards could have features turned on that allows those employees to make purchases only at related stores or companies. These restrictions are established by using merchant classifications codes.

In addition, the reporting is robust. Within 48 hours, a company will see the purchases. Commercial card has three levels of reporting; the level of detail you receive on a purchase depends on the merchant’s capability. With the higher levels, there is the ability to capture sales tax, general ledger codes, whether it’s a minority-owned vendor and exact specifications of the purchase.

There also are many reporting segments within the program, such as expense management where an administrator can create expense reports for each employee.

Does size or industry make a difference to how much a company benefits?

Size does matter. Larger companies have more purchasing needs and requirements. Smaller companies can use these cards, but most banks have a minimum, or an annual spend, and if a business is below that threshold the bank probably won’t offer a commercial card solution.

As far as industry goes, all industries can use the product, but there are more benefits to some, such as manufacturers, the travel industry and nonprofits.

What else is important to understand when getting these cards?

Commercial card, which has no interest rate because it is paid off in every billing period, does carry risk for banks. However, banks may be able to work with you to mitigate the risk, and therefore offer the cards, by decreasing the billing period, which can go all the way down to a daily settlement.

Banks only qualify the company, not the individuals who are issued cards. A bank will give the business a total limit, and then you can issue as many cards and assign whatever limits you wish as long as it’s underneath that umbrella.

There are different options for these cards. Some banks have a charge; others don’t. Most cards offer a rebate, but that rebate could either be in the form of points or dollars. Also, some banks require that you have a relationship with them. You can explore the programs from various banks to see which one will fit your organization best.

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How a few simple controls can make the difference in fraud prevention

By and far, the most pervasive fraud risks to companies are cybercrime and internal fraud.

Cybercrime takes many forms — from large fraud operations such as credit card data breaches to malware attacks that collect private information from company computers, including system passwords. At the same time, a lack of internal controls for protecting company assets and reconciling accounts regularly can result in significant losses.

“The risk of corporate fraud, internal and external, places companies in a precarious position. They need to balance routine business flow and operations with preventing and detecting fraud (particularly online fraud exposure) that may result in operating losses,” says John Harrison, senior vice president at California Bank & Trust. “In many cases, a few simple controls can make the difference between a profitable year and a large financial loss.”

Smart Business spoke with Harrison about how companies can better protect themselves from fraud risks.

How has the increase in electronic payments changed the fraud prevention landscape?

Billions of people have benefited from instantaneous access to information from anywhere, at any time. But these advances have also aided criminals who use technology to steal identities, credit card numbers and cash. Gone are the days when people or companies were robbed in person. It’s more lucrative and easier for a cybercriminal to steal from the comfort of a laptop.

What business controls would you recommend to reduce the risk of fraud?

Tried and true common-sense controls are a first step. Access to blank check stock must be monitored. Simple dual accounting controls, such as ensuring staff responsible for fulfilling customer orders are different than employees reconciling order invoice payments, reduces fraud opportunities. Whenever possible, reconcile accounts daily (easily available through online banking) but always at least monthly, and report discrepancies immediately.

Restrict online access on a need-to-use basis. Use dual authentication with online transactions such as online transfers and outgoing wire transfers. Always employ strong online passwords and change them regularly. Utilize secure entry tokens for all users who perform administration functions or process online payments.

Beware of customer emails requesting a change to wire destination instructions, as hackers can compromise email passwords through malware attacks and social engineering. If in doubt, call the customer to confirm any out of the ordinary payment requests or change to a payment destination.

What other steps can help prevent fraud? 

Some additional controls to employ include:

  • Using online services like Trusteer’s Rapport, a free program that helps detect and mitigate malware attacks and phishing attempts. 
  • Avoid downloading programs or files from unknown sources, which could include malicious code and fraudulent programs. 
  • Limit the use of flash drives, CDs or other portable media that can transport and install malicious code.
  • Talk to your bank about fraud prevention products and services, such as Positive Pay, which matches check issue information against checks presented to identify discrepancies or suspect checks. 
  • Keep security software, anti-virus programs and firewalls up to date.
  • Never conduct casual Web-surfing or social media site visits on computers used for business transactions and payments. You can dedicate specific computers for online business tasks only.

These controls are a matter of exercising prudent, common-sense information protection and accounting controls.

Is there anything else you’d like to discuss?
Fraudsters are always one step ahead, devising new, clever techniques to separate companies from their money. The old saying ‘if a deal sounds too good to be true, it probably is’ is still true. A business offer from an unknown person via email promising a large profit for a quick transaction is a huge red flag. Educated people fall prey to fraud all the time; due diligence, prudent internal controls and common sense are the keys to preventing losses.


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How to expand your business through an SBA loan

Santiago “Chico” Perez, SBA Sales Manager, California Bank & Trust

Santiago “Chico” Perez, SBA Sales Manager, California Bank & Trust

You need operating cash to grow your business, but securing a traditional commercial loan isn’t always easy for small and midsize business owners. Fortunately, Small Business Administration (SBA) loans are a worthwhile financing option. An SBA loan typically offers longer terms, more competitive interest rates and, best of all, bankers can be more lenient because the government guarantees up to 75 percent of the loan amount.

“An SBA loan is a sensible option for businesses that experienced a decline in sales and profits during the recession,” says Santiago “Chico” Perez, SBA sales manager for California Bank & Trust. “Bankers can consider your financial projections, along with historical data, when evaluating your loan application.”

Smart Business spoke with Perez about the growth opportunities through an SBA loan.

When should business owners consider an SBA loan, and how do these loans differ?

New ventures traditionally have a hard time securing working capital, but you may get $100,000 to $5 million through a SBA loan, as long as you’ve run a similar enterprise and propose a viable business strategy. You also can use SBA funding to purchase another company or procure equipment or inventory to fulfill a new contract.

Generally, SBA loans can offer more favorable terms. For example, you only need 10 percent down to purchase real estate, and you can roll fees into the loan balance. SBA loans feature higher loan-to-value ratios, longer repayment periods and no balloon payments. Companies often qualify for higher loan amounts because they can amortize the purchase of buildings over 25 years or equipment over the remaining economic life, and need less cash flow to service the debt. Owners also can use funds to buy raw materials, finished goods or equipment to expand into new markets.

How does the SBA’s underwriting criteria differ from traditional commercial loans?

Bankers will review standard requirements such as financial statements and credit reports, but some criteria differ:

  • Projections. Bankers consider future sales and historical data when evaluating loan applications. Ensure your projections are realistic and correlate with current financials and forecasts. For example, earnings won’t automatically double with a larger facility or new equipment. Instead, explain how the equipment lowers operating costs or how you’ll use the extra space to add a new production line. Substantiate claims with copies of customer agreements and contracts.
  • Resumes. Tout your management team’s industry experience and track record.
  • Ownership. Owners with more than a 20 percent stake must submit signed personal financial statements and tax returns.
  • Down payment. Lenders must determine the source of a borrower’s down payment, even if the funds are in an escrow account.
  • Collateral. The need for collateral hinges on the loan purpose and program so review underwriting criteria at, and state both in your proposal.
  • Tax returns. Owners must supply three years of tax returns, financial statements and balance sheets to qualify.

Does the SBA offer other support to small business owners?

The SBA provides myriad tools and support to help owners create a loan proposal and navigate the underwriting process. Small Business Development Centers offer free assistance with financial, marketing, production and feasibility studies, and many centers engage local experts.

The SBA also provides mentorships, free counseling and business plan expertise through the national nonprofit SCORE.

What else can owners do to successfully navigate the lending process?

Loan approval hinges on an accurate, thorough proposal, so take your time and seek expert advice. Bankers want to hear the story behind your numbers; be ready to explain how you overcame adversity and how you’ll use the SBA loan to take your business to the next level. Help your banker understand your customers by including links to your company’s website, LinkedIn page or Facebook page in your proposal. Finally, you can accelerate the process by selecting an approved Preferred Lender who can approve loans without submitting the entire package to the SBA.

Santiago “Chico” Perez is an SBA sales manager at California Bank & Trust. Reach him at [email protected]

Website: California Bank & Trust is an SBA Preferred Lender. Learn more at

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How mobile and online banking tools enhance business banking

Susan Brown, senior vice president, Marketing Group manager, California Bank & Trust

Susan Brown, senior vice president, Marketing Group manager, California Bank & Trust

As summer begins, more of us will be taking some well-deserved vacation time, but business doesn’t grind to a halt just because you happen to be away from the office. That means more entrepreneurs and business executives will be relying on online and mobile banking tools to stay in touch with their business finances.

Given the need to access financial information in real time, what does the future hold for online and mobile banking? More importantly, how can these resources help business executives make better decisions for meeting their strategic goals — now and in the future?

Smart Business spoke with Susan Brown, senior vice president and Marketing Group manager at California Bank & Trust, about how online and mobile banking tools are helping executives not only access account information, but also provide sophisticated technologies for meeting complex business and treasury management needs.

Why has mobile banking become so important to business customers?

In today’s fast-paced business environment, you can’t afford to be out of touch with your finances. It’s become more essential than ever for entrepreneurs and their teams to have 24/7 access to a variety of business metrics, such as account balances, payables, receivables, cash on hand and more.

In the past, traditional online banking tools accessible via desktop PCs and laptops met these needs, but smartphones and tablets are now becoming preferred devices for accessing information. A recent report predicted that by 2014 smartphone shipments are likely to top 1 billion units, and that by next year sales of tablet devices will exceed sales of traditional laptops.

Data like this makes it clear that mobile devices are going to be key tools for business leaders to get more done in less time.

Has mobile overtaken online banking?

Mobile banking is not different from online banking — you’re just using a different device and tools to access information remotely. The more people rely on tablets and smartphones, the more mobile apps will grow in popularity. The most likely scenario for the near future is that most business users will adopt a hybrid approach, using traditional online banking tools in the office and mobile apps on the road.

Why is online banking expanding from transaction-oriented to customer-centric?

The best financial institutions are customer-centric. These banks focus squarely on strong relationships between their clients and business bankers. Clearly, customer-centric institutions want online and mobile banking resources and technologies to reflect and mirror those values.
Transactions are important, so of course online and mobile services need to support high-transaction volumes. However, the real value is banking experts helping clients make the best use of sophisticated tools to meet complex needs, such as cash management and fraud prevention. This is why a customer-centric approach will continue to be a focus.

Will the popularity of online and mobile banking impact the future of bank branches?

When online banking first emerged, many in the industry thought it might mark the end of branch banking. However, face-to-face contact is still important, especially in a business-banking context. Many transactions, such as those involving deposits and cash withdrawals, require a network of branches. There will be a gradual decrease in the number of branches, but branch banking isn’t going away anytime soon.

What online or mobile options are available?

Most people know they can pay bills online, check the status of payments and review balances, but there are other online tools that offer more sophisticated capabilities. For example, businesses can use advanced treasury and cash management solutions customized to meet highly specific needs.

What new capabilities under development could be used in the future?

Institutions are investing in user friendly and interactive websites, as well as introducing new apps that allow clients to service their banking needs from tools like mobile devices and iPads. As the capabilities of these devices grow and devices are introduced, banks will develop new, interactive ways to support their clients’ growing needs that complement the traditional avenues.

Susan Brown is senior vice president and Marketing Group manager at California Bank & Trust.

Mobile: To learn more about California Bank & Trust’s business mobile banking app, now optimized for iPads, visit

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How to use the best financial solutions for growing small businesses

Betty Uribe, Executive Vice President, California Bank & Trust

Betty Uribe, Executive Vice President, California Bank & Trust

Small business owners still remain concerned about access to capital and making sure that they have access to the best solutions for improving their cash flow and finances.

So what specific financial solutions can truly help small businesses throughout the state grow and prosper?

Smart Business spoke with California Bank & Trust Executive Vice President Betty Rengifo Uribe about ways small business owners can leverage some helpful financial solutions to save money and streamline operations.

What specific types of financial solutions should small business owners be considering right now?

There are several different solutions that many business owners can use to improve their finances.

Since access to capital is still a critical issue for many small business owners, entrepreneurs should consider a wide range of solutions, including loans, lines of credit, leases and, perhaps most importantly, Small Business Administration (SBA) loans that may offer very favorable rates and terms.

Beyond that, any solution that can help grow revenues and streamline operations is worth a further look. Some of the most useful include: merchant services, business credit cards and remote deposit.

How can small businesses use merchant services to their best advantage?

Any business, large or small, should be offering customers as many payment options as possible. With the right merchant services solutions and technology, you can accept credit cards, debit cards and even gift cards.

What’s your advice for using business credit cards?

One of the best cases for using a business credit card is that it allows you to keep your business expenses completely separate from your personal expenses. With many cards, you will receive detailed reports of expenses that are already sorted by categories. That can make it a lot easier for both you and your accountant during tax season — saving time and resources.

Many small business owners have cards issued to employees. You have to be careful and monitor spending, but imagine how much easier it is for employees to pay their expenses with a credit card instead of dealing with the tedious paperwork of requesting reimbursement checks. This allows your employees more time to focus on their core job responsibilities.

Additionally, you get the usual benefits of credit cards, such as various rewards programs, a credit line that you’re able to access and protection against fraud for purchases made with the card.

What is remote deposit, and how does it help small business owners?

Business owners and their employees need to make the best use of their time. One way to do that is to avoid frequent trips to the bank to make deposits.

With remote deposit, you can deposit checks right from your office. You simply scan checks and they’re automatically deposited into your account. That means you can make deposits anytime — on weekends or in the evening — which can give you an extended deposit window for crediting funds to your account.

Remote deposit also allows you to store images of checks electronically so there’s no need to store physical copies of deposited items.

What do you say to business owners who don’t see value in solutions like these?

Time and time again these solutions and others really move the needle in terms of streamlining operations and enhancing revenue opportunities. Not every solution fits every business, of course, but with a wide range of choices, your business banker can help you customize solutions that address your goals and add more value to your business.

Betty Rengifo Uribe is executive vice president at California Bank & Trust.

Website: Helpful resources for small businesses.

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Focusing on small business needs during Small Business Month

Tory Nixon, executive vice president, California Bank & Trust

Tory Nixon, executive vice president, California Bank & Trust

California small business owners rely on banks for traditional financial services, of course, but also for valuable knowledge and advice on navigating today’s challenging economy.

That’s why California Bank & Trust periodically conducts surveys of small business owners as part of the bank’s commitment to understanding small business owners’ challenges and needs.

“Knowledgeable banking professionals who take the time to understand your business objectives and your industry will often provide valuable suggestions on how to significantly improve your finances,” says Tory Nixon, Executive vice president at California Bank & Trust.

In support of Small Business Month, Smart Business spoke with Nixon about the most recent survey the bank conducted and what it revealed about the challenges small business owners face as the state’s economy continues to recover.

What challenges do California small business owners face?

Laws and regulations seem to be the biggest hurdle for business owners, with nearly 38 percent of survey responders citing that as a major issue. There’s also concern over cash flow and money management, access to capital and finding top quality employees.

Nearly half of those who responded describe California’s economic climate as worsening. While that might appear bleak, about half of all respondents also cited a need for additional capital in 2013 to expand or increase staffing.

What tools can owners use to overcome these challenges and succeed?

As noted, access to capital continues to be a challenge for smaller businesses, but small businesses can and do get financing — especially when maintaining a good working relationship with their business banker, who can help in arranging loans and lines of credit.

One key advantage that small business owners have over their larger counterparts is access to Small Business Administration financing. Look for a bank that’s a preferred SBA lender. That’s a sign that there are knowledgeable bankers who can help you navigate the complexities of both SBA 504 and SBA 7(a) loans, or provide you with traditional small business financing options.

Small business owners also should stay focused on their cash flow. Your business banker can provide expertise in cash management and access to accounts and technologies that can keep idle cash working as hard as possible.

How do business owners feel about their banking relationship?

Again, small business owners seem to be extremely concerned with cash flow management and access to capital, but a significant number are also looking for more expert knowledge and advice from bankers.

The bank’s survey found that about 80 percent of business owners feel their bank doesn’t do enough to inform them of state, federal or local programs that could help their business. That’s why many local and community banks are extending services to provide access to highly informative resource centers, digital magazines and newsletters, which provide exactly that kind of information and are easily accessible online. Banks also are providing valuable information through social media channels and via email marketing programs.

How can you improve your banking relationship and increase business growth?

In most cases, all you have to do is ask for help — and your business banker will follow up as often as necessary. Knowledgeable banking professionals who take the time to understand your business objectives and industry will often provide valuable suggestions for improving your finances.

Getting the most from your banking relationship means keeping the lines of communication open and scheduling regular meetings. Don’t be shy about sharing your business vision; it will inspire your banker to suggest the best solutions, technologies and financing to help your business grow in the months and years ahead.

Tory Nixon is executive vice president at California Bank & Trust.

Website: May is Small Business Month in California. Learn more.

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How using a business credit card can help manage spending

Steven Borg, senior vice president, corporate marketing director, California Bank & Trust

Steven Borg, senior vice president, corporate marketing director, California Bank & Trust

Business credit cards can be highly useful, efficient and versatile tools for many small business owners, as long as they are used in a prudent way. What are the benefits of using business credit cards? How should you select one? What best practices should be employed?

Smart Business spoke with California Bank & Trust Senior Vice President and Corporate Marketing Director Steven Borg to discuss how entrepreneurs can best use business credit cards to improve financial management processes and streamline cash flow.

Why should small business owners use a business credit card instead of a personal card for company expenses?

Using a business credit card instead of a personal card lets you more easily track your spending, keeping business and personal expenses separate. Most card issuers provide highly detailed reports categorizing your expenses, which can be very useful for accounting and tax purposes. Like personal cards, business credit cards may come with various rewards programs, such as cash back or additional savings on business expenses. Using a business credit card also may provide public relations value to your business by making a good impression when you’re purchasing goods and services, or entertaining clients.

What are the advantages of using a dedicated business credit card?

Using a dedicated business credit card allows you to control spending, streamline your operations, view your transactions efficiently and provide your business with fraud protection.

Business credit cards typically permit multiple users to have individual spending limits, giving you the ability to control your company’s spending while still allowing your entire team to move forward with their business needs. Additionally, having your employees use their respective business credit cards eliminates the need for your company to reimburse them for expenses. This saves on paperwork, streamlines processes and gives you more precise control over your team’s spending.

Most business credit cards come with enhanced reporting features, allowing your management team to watch expenses closely, categorize the transactions and make strategic decisions based on the complete spending patterns of your company — an excellent cash flow management tool.

Putting all of your expenses on a business credit card also offers you a certain level of protection against fraud. Like personal credit cards, the card issuer may be able to resolve problems with any products or services you’ve purchased with the card.

What are some of the pitfalls of using business credit cards? 

Like any other credit card, interest builds if you let balances grow too high. In some cases, a ‘penalty rate’ is imposed for late payments, which can seriously impact your credit rating and be costly for your company, so pay off your balances regularly.

Although business credit cards allow for improved efficiencies, it is important that managers and owners continue to monitor their team’s transactions, control their expenses and pay off their balances monthly. Additionally, if your company decides to allow for multiple users, there is potential for misuse. Setting strong boundaries, creating specific spending limits and monitoring transactions monthly will reduce the risk in this area.

What should a small business owner do before applying for a business credit card?

Sit down with a business banker who understands your business and industry to help you chose the right product for your specific business needs. Review terms such as rate, grace period, any rewards programs, and perhaps most importantly, the type of information and functionality available in the monthly reporting. It’s also important to find out how credit limits are set and how you can control your employees’ use to minimize risk.

Above all, remember that while the use of a business credit card may very well be a smart business practice, it certainly does not replace astute management.

Steven Borg is senior vice president and corporate marketing director at California Bank & Trust.

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How to access working capital for exports and become a global player

Alfred Ho, vice president, enhanced credit specialist, California Bank & Trust

Alfred Ho, vice president, enhanced credit specialist, California Bank & Trust

International expansion is a great way to grow as the U.S. economy slowly recovers, and the population and per capita gross domestic product of countries such as India and China continue to rise. But finding funding for exports can be difficult, unless you leverage a government-backed program.

“Why turn away sales when you can get working capital assistance through government programs to penetrate red hot foreign markets?” says Alfred Ho, vice president and enhanced credit specialist at California Bank & Trust.

Smart Business spoke with Ho about the benefits of leveraging guaranteed export financing.

What is the working capital guarantee program?

U.S. manufacturers were struggling to compete overseas, as foreign sales and receivables are generally excluded from traditional lending programs. So, to spur exports and domestic hiring, the federal government offers guaranteed financing programs administered by the Small Business Administration (SBA) and the Export-Import Bank of the United States (Ex-Im Bank).

The loan proceeds under these programs can be used to purchase supplies and equipment, hire staff or, in the case of the SBA’s Export Express program, even attend an overseas trade show. And because the terms are flexible, owners can use the loan proceeds to fulfill a large contract or several small deals.

How do the programs help small businesses?

The programs encourage banks to lend to small businesses by guaranteeing 90 percent of the loan amount and allow loan officers to consider foreign receivables and work-in-progress during the underwriting process.

Plus, if a standby letter of credit is required to support a bid bond, advance payment guarantee or performance bond, the collateral requirement to have one issued is only 25 percent, instead of the 100 percent in traditional cases. This provides an edge for a U.S. company in its quest for overseas contracts.

How much can companies borrow and what does it cost?

The SBA export working capital program permits loans below $5 million. It charges an upfront fee of 0.25 percent of the loan amount and an annual utilization fee of 0.55 percent, which is assessed monthly.

There’s no limit to how much you can borrow from Ex-Im Bank, and its upfront fees range from 1 to 1.5 percent of the loan amount. The loan interest rate is based on the prime lending rate plus a spread. Interest rates for larger loans are based on the London Interbank Offered Rate,

which is currently hovering around a 52-week low.

What are the eligibility requirements?

Requirements differ among the programs but they all require a firm purchase order prior to advance and, minimally, shipment from a U.S. port to a country acceptable to Ex-Im Bank. Goods and services shipped must have at least 51 percent U.S. contents. Certain products are excluded from the programs. A company must also have a positive net worth and be profitable for the last three years to qualify.

For other qualifications and restrictions, talk to your lender or visit the SBA or Ex-Im Bank websites.

How can business owners find a participating lender?

Your local SBA or Ex-Im representative can provide referrals, but you can look for a Delegated Authority Lender who has the ability to expedite your loan.

Your banker can walk you through the lending process and share helpful ideas. The banker should be able to suggest ways to lower the risk of international commerce.

The important thing is: Don’t venture into the international marketplace alone. Find a competent banker to serve as your guide.

Alfred Ho is vice president, enhanced credit specialist at California Bank & Trust. Reach him at (213) 593-2118 or [email protected]

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How to make better decisions when purchasing machinery and equipment

David Beckstead, Pacific Region sales manager, CB&T Equipment Finance

Whether your wish list includes manufacturing, medical, transportation or technology equipment, how you finance major purchases may not only impact the return on your investment but the success of your entire company.

“Financing decisions impact cash flow and a company’s ability to capitalize on opportunities or respond to adversity,” says David Beckstead, Pacific Region sales manager for the Equipment Financing Division at California Bank & Trust. “Executives need to weigh their options carefully before making a decision.”

Smart Business spoke with Beckstead about the need for prudent financing decisions when purchasing machinery and equipment.

What should executives consider as they are reviewing various financing options?

The rule of thumb is to match the financing terms to the life of the asset. In other words, it’s best to use short-term financing for short-term business needs, and longer-term financing for long-term business assets such as equipment that will generate revenue or reduce operating costs for the foreseeable future.

You can avoid finance charges and interest by paying cash, but leasing the equipment or borrowing the funds lets companies preserve capital for other purposes. You should also consider the tax implications and the ultimate cost of the equipment along with your ability to make a substantial down payment to secure a traditional bank loan.

When does leasing make sense?

Leasing makes sense when companies want to preserve cash for future growth or expansion, they need flexibility or they don’t have a lot of cash to put down. Since leasing companies usually maintain ownership of the asset, companies can upgrade or return the equipment should their needs change. For example, you can align the lease terms with a customer agreement or upgrade to a bigger, faster model as your company grows. Plus, most leasing companies don’t require a down payment and it may be possible to negotiate a longer-term payment plan, improving cash flow.

With leasing you can usually deduct the lease payments as a business expense on your tax return, and on short-term leases the rental expense may provide a better tax benefit than depreciating the asset. You may be able to transfer the risk of ownership to the leasing company depending on the type of lease.

How can executives research the market and secure favorable leasing terms?

Prioritize your needs, and then search for the best combination of rates, terms, flexibility and customer service by contacting several firms. Bank leasing companies usually have high underwriting standards but lower rates, while finance companies can be more lenient lenders but generally charge higher rates. Vendor finance companies are a third option and are generally the most flexible about taking back or exchanging equipment. However, they usually charge higher rates.

Beware of upfront payments and fees, hefty residual payments, pay-off fees and other clauses that may boost the overall cost of the equipment. In fact, it’s a good idea to ask a knowledgeable third party to review the agreement so you don’t forsake the benefits of leasing by accepting disadvantageous terms.

What should executives look for in a leasing firm?

Always consider a firm’s reputation, check its references and read its contract before requesting a quote. Contracts differ between companies and impact everything from tax deductions and residuals due at the end of the lease to the responsibility for servicing the equipment. Finally, select someone you trust. Your financing partner should provide funding and be committed to your success.

David Beckstead is Pacific Region sales manager for California Bank & Trust Equipment Finance. Reach him at (949) 457-0458 or [email protected]

Website: Business owners and entrepreneurs can visit our Business Resource Center.

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