The 5 Must-Haves For Selecting a Commercial Banking Partner

by Eric Johnson 21. April 2016

There’s much at stake when it comes to choosing a good bank for your business. More than just a payment processor and cash depository, an excellent bank is a business partner. Your banker should be a key advisor on everything from setting up bookkeeping to deciding whether to open up more locations; a “seal of approval” to potential customers and vendors; and even a gateway, opening doors to your community’s business circle and providing key introductions.            
     
That’s why we’ve put together these five tips you can use to find a bank that best fits your business.

1. Know Your Needs

Start with the basics: Identify what kind of checking and savings accounts you’ll need. Consider the number of transactions you’ll make per month and the lowest amounts you’ll keep in those accounts. If you plan on doing online business, do you want a separate merchant account for that? The types of business accounts banks offer – and how much they charge – vary widely.

Also consider if you’re going to need loans, whether you need local branches (do you have to make cash drop-offs?), and if you have online/mobile banking needs.             

2. Consider the Relationship

Whatever size your business is today, you’ll likely need advice and face-to-face interactions from your bankers as you grow.

If your bank is truly a partner, then you’ll want a partner who knows you. So ask some questions: Where are lending decisions being made, and by whom? Will you have an opportunity to meet with the person making the decision, or will decisions be made by a central authority in another city?

Can you speak with your banker when you need to, or will your questions by some call center? It’s easy for a bank to be there for you when business is good, but who will be there if things go cold for a while and you need advice about, say, smart ways to cut costs? Will your banker return your call? Will he or she know how to help you?

3. Consider Your Options       

Generally, you have four options: big banks, local banks, Internet banks, and credit unions. Each has its advantages and disadvantages.

National banks have lots of locations solid online services. However, they’re often disconnected from the communities they serve, won’t always make time for small or even mid-sized customers, and can be tight with their lending practices, especially during economic downturns.

Credit unions, on the other hand, are deeply connected to their communities and, because they are nonprofit, usually offer lower fees. However, they cannot always lend to small businesses and sometimes lack robust online features and mobile services.

Community banks account for 50 percent of all small-business lending, even though they control just 18% of all U.S. bank assests. That's becuase they gnerally offer the best and most face-to-face interaction, and they generally work hard to cultivate relationships with local businesses. Ineed, they can sometimes be your connection to local customers and vendors.       

4. Talk to Everyone                                          

Talk to your business peers and personal bank to get an idea of which business banks offer the best services and have the best reputations. If you can, get referrals to the banks at the top of your list. Referred customers are usually worth more and are more dependable. So they may be more likely to offer you better service and lower loan rates.

When you make on-site visits, look at the banker, not the bank. This is who you'll be working with. Again, you want a business partner, not a salesperson. Go in with a list of questions – and be ready to answer the banker’s questions. Consider this a two-way interview. Your relationship with your bank is a longtime collaboration, not a one-time transaction.

A great banker will introduce you to prospective clients and vendors; help you set up your accounts payable and receivable operations; and perhaps one day aid in your search for a controller or CFO. Can you see the person sitting across from you doing all that?

5. Reevaluate Regularly

Once you've chosen a bank, start building a relationship immediately. A solid collaboration leads to more likely loans at more favorable terms. It also leads to those critical ties to the local business community.

But don’t get too comfortable with your bank. As your business grows, a different bank may serve you better, so make a point to review at least annually whether your current bank continues to serve all of your needs.

When you do that review, ask yourself: When was the last conversation with my bank? What was it about, and who initiated it? When I call my bank with a question, do they call me back? How quickly? Do I actually like my banker?

According to a 2013 poll by Gallup, 32% of businesses were "actively antagonistic toward their bank. You don’t want to find yourself there.

A great bank is a rare and precious resource. So take time and effort to make this important choice. And to set up a conversation with one of our Commercial Relationship Managers, just reach out

When Debt Can Be Good For You - And When It's Bad

by Erica Starr 11. April 2016

It's next to impossible to go through life without accruing some debt. The good news is that some loans can be healthy and even productive, which means there's no rush to pay them off. Other debts should be erased more quickly. Here are a few examples of debt that can help — and hurt — your financial health.

Good Debt

Student Loans

As overwhelming as education loans can be, how you handle this debt can actually boost your credit. The three major credit bureaus — Experian, TransUnion and Equifax — consider this debt as a type of installment loan. So if you make payments in full and on time each month, you build up a good credit history, which future lenders will recognize. More specifically, properly handling student debt can boost your credit score.

Education loans can also help decrease your taxable income. On your federal tax return, the interest you pay on loans can be deductible up to $2,500 or the amount you paid, whichever is lower, provided you meet certain qualifications.

Plus, student loans tend to have more manageable interest rates, in the single digits, compared with other forms of debt such as credit card balances. The standard amount of time to repay federal education loans is 10 to 25 years, depending on the loan.

Mortgage loans

Like student debt, a mortgage is an installment loan. As long as you make monthly payments in full and on time, you can maintain or improve your credit. The interest you pay can also be tax-deductible.

Mortgage rates and terms can vary, which can affect their quality as good or bad debt. A fixed-rate loan's payments won't change over its term, which can make paying it easier to manage. Paying an adjustable-rate mortgage can be more challenging after any fixed-rate introductory period ends if the market pushes the rate — and the payment — higher.

Auto loans

You can help your credit score rise by making full payments on time on an auto loan. You'll also help your auto-enhanced score, which looks at auto credit history, including any vehicle repossessions or bankruptcy effects. But cars depreciate with time and use, so try to avoid winding up owing more than a car is worth. This can happen if you latch onto a loan that doesn't require a down payment, or where the monthly payments are low and the loan lasts for six or more years.

Bad debt

Crecit card balances

A credit card gives you access to a revolving line of credit, meaning you can use as much as the card limit, pay the money back and borrow it again. If you overuse a card, though, your credit score can drop. With cards typically carrying a double-digit rate, keeping an outstanding balance can mean paying thousands of dollars extra over time. The average household with a card balance owed $15,355 as of the third quarter of 2015.

Short-term loans

Short-term loans, either from payday lenders or lenders that demand property such as an auto title as collateral, can ensnare borrowers in debt traps and lead to property losses while the annual interest rate can soar to over 400%, according to federal regulators. This is one of the most potentially harmful sorts of borrowing.

Whether debt is good or bad relates to how it may affect your finances. Using debt to invest in your home can build equity, and education debt can lead to a better job, both of which can pay off later on. Short-term borrowing and carrying high-cost balances are both unproductive and harmful to your credit.

When weighing whether to take on debt, make sure it's affordable so your financial health remains strong. 

Five Tips for Successful Cash Flow Management

by Lonnie Bass 29. March 2016

 

Perhaps you’ve seen a trendy café in your neighborhood suddenly shut down. Or maybe you’ve seen a local nail salon go from one bustling location to a six-shop regional chain to bankruptcy in under a year. 

Much less visibly, thousands of trucking companies, landscapers, plumbers, and graphic designers hang out their shingles every year. Then, after a little while – even if they’re growing and making profits – they close up shop.  

These business failures usually stem from cash-flow problems. That’s because revenue growth and hefty profits do not equal cash. Without cash, a business can’t pay its creditors, its landlord, or its employees. And no business will stay open long if it can’t do those things.

Cash is the lifeblood of any business – making successful cash-flow management among the most crucial parts of running yours. You track accounts receivable, accounts payable, and your business’s other key numbers. And you work constantly to cut expenses and increase sales – and to get your hands on the cash those sales promise.  

 According to a 2013 University of Tennessee study, 25 percent of new businesses fail after one year, 36 percent fail after two years, and 44 percent fail after three years in business. And Dun & Bradstreet Small Business finds that 90 percent of small-business failures are due to shoddy cash-flow management

Now, grasping cash flow’s importance is relatively easy. Maintaining positive cash flow is much more difficult, even for profitable businesses. These five tips will help business owners of all sorts do the work necessary to achieve that.                   

1. Be Conservative 

Start out by creating a realistic budget, calculating when you expect to break even and working toward that. Include everything – operating expenses, salaries, taxes, equipment maintenance and raw supplies – in any budget.

Further, be conservative in your spending. Consider the benefit every time you reach for your checkbook or credit card. When equipment breaks down, repair it. And if you have to replace, consider buying used equipment. One more “conservative” tip: Set aside the funds you’ll have to pay taxes with as you incur those taxes rather than digging up cash when they’re due.

2. Get Paid

It’s crucial to make collecting receivables a top priority for your business, which is why you need to ensure you have the right people in place to get the job done.

Start by hiring an experienced controller or CFO to ensure finances are being properly managed. (Your CFO or controller is more than a collection agent and bookkeeper, of course; he or she should also have experience in forecasting growth and in developing place strategies to support that growth.)

Next, set clear policies for “collection days” – how long you’ll wait to get paid – including penalties for late payments, such as 5 percent after five days late. You can also provide incentives and discounts for early and cash payments. If you’re a contractor, invoice your clients early and often – don’t wait until a project is over before sending your invoice. Set up a payment schedule before starting work.

And then follow up on those policies. Stop work after 30 days if you haven’t been paid. Call as soon as a payment is late – and then every week after that. First-time entrepreneurs may think they can depend on collection agencies for this work, but they should be a true last resort. They take 30 percent or more and usually end up collecting just pennies on the dollar.                    

3. Pay Your Bills

Late fees add up quickly – and, worse, lead to bad reputations. So, watch your “payment days” as closely as you watch your “collection days,” and err on the side of caution when it comes to paying vendors on time. Don’t abuse generous deadlines – get a good reputation and keep your balance sheet clean at the same time.

Don’t be afraid to ask for discounts for early and/or cash payments. Moreover, feel free to “barter” for equipment, contractors, raw materials, etc. Most businesses are happy to haggle in order to land a steady customer who pays on time.                                     

4. Keep the Shelves Bare

It may seem counterintuitive, but if you’re selling a product, keep on hand the least amount of inventory as you can get away with. After all, every dollar you’ve spent on inventory is a dollar you don’t have in cash. And without cash, you can’t do anything. So watch your "inventory turnover" – how long your inventory sits before becoming a sale – like a hawk. And always work on reducing that number.

To keep an eye on these cash-flow metrics, there are numerous cash-flow calculators available online, including one from 1st Mariner Bank.

5.  Have a Backup Plan

It’s important for businesses to retain earnings and build net worth to weather difficult times.

In fact, new businesses should always have enough cash on hand to cover two months of expenses. Larger businesses should ratchet that up to three to six months’ worth of reserves. Keep your cash reserves in an interest-paying account, not long-term hard-to-access CDs or stocks or other riskier investments.

All businesses should consider keeping an open line of credit. And many businesses end up having to take out a loan to get through a cash crisis. So make sure your bankers know you – and keep them informed about events that impact cash flow, such as a growth spurt or a major customer behind on payments. If you regularly demonstrate a clean operation, they’ll be much more likely to make that loan when you really need it.

Cash flow management can be daunting at first – and remain challenging throughout the life of your business. But if you keep a realistic budget, manage your expenses and payments due, maintain a healthy “rainy-day fund,” and keep your expenses down, you’ll be doing better than most of your competitors. And you’ll soon be overachieving when it comes to revenue growth and profit.

You may find yourself in need of help along the way. Before calling in expensive consultants, consider contacting the Small Business Administration. 



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