Your banker should be able to help you determine FDIC insurance, but here is a great link to the FDIC website:
http://www.fdic.gov/consumers/consumer/news/cnwin0809/guarantee.html
Monday, March 23, 2009
Monday, March 16, 2009
What you need to know about getting a business loan
Developing and maintaining a relationship with your banker has never been more important. Most businesses rely on their bank for essential services such as checking & savings accounts, equipment loans, working capital lines of credit and commercial mortgages. A business owner’s relationship with their banker should be built on mutual trust and respect and based on value not price. The old adage “you get what you pay for” is applicable to most things in life including a business banking relationship. It may cost a bit more for a banker who is truly a valuable business advisor rather than simply an order taker, but it’s worth it!!!
A specific value that a banker can add to the business relationship, especially today is to educate their clients about what is typically needed when applying for a business loan. Most business owners are unsure what bankers are looking for when evaluating a loan request. That confusion can only be compounded today by all the talk of tight credit. Credit is absolutely available today. In order to avail themselves to it, business owners should be aware of the process that goes into considering a loan request and the type of information and documentation they will be expected to provide.
When a business owner is seeking a loan they should be prepared to discuss:
1. The amount of the loan
2. The purpose of the loan– to purchase assets, payoff old debts, fund operating expenses, buyout a partner, etc
3. The security being offered for the loan – collateral such as real estate, equipment, inventory, accounts receivable, stocks, bonds, etc
4. The term of the loan – how long will it take to repay the loan
5. The company’s financial condition – past, present and future
The banker will typically look for documentation to support the loan request and measure the relative financial health of the business and the principals…documentation such as:
1. Federal tax returns (2-3 years) for both the business and principals
2. Year-end financial statements (2-3 years)for the business
3. Year-to-date and projected financial statements
4. A personal financial statement – listing what the principals own & owe
5. Business bank statements (2-3 months)
Lending money is all about managing risk. To help bankers evaluate risk more completely they will typically test a loan request and accompanying financial data against the following criteria.
1. Character – Does the borrower exhibit character or integrity? Does the business and its owner have a good reputation in the community?
Does the borrower exhibit a good credit history? Does the business and its owner pay their creditors on time?
2. Capacity – Does the borrower exhibit the financial capacity to repay the loan requested? Is sufficient cash flow available to make the payments?
3. Capital – Does the borrower exhibit sufficient capital to support the loan requested? Is there sufficient cash for a down payment and for a cushion in case business gets slow.
4. Collateral – Can the borrower provide sufficient collateral to secure the debt? Are there assets such as real estate, equipment, A/R or inventory that can be pledged to the bank as security for the loan?
5. Conditions – Is the condition of the borrower, the borrower’s industry and the general economy favorable to the repayment of the loan? Are there aspects of the business, the industry or the economy that would negatively impact the ability to repay?
Loans for small businesses are available. Community banks are ready, willing and able to provide that much needed financing. But, now more than ever businesses must be able to provide the information and the documentation necessary for bankers to assess and mitigate the risks inherent in making loans. Being prepared before you apply is an important first step which will accelerate the process and increase your chances for an approval.
A specific value that a banker can add to the business relationship, especially today is to educate their clients about what is typically needed when applying for a business loan. Most business owners are unsure what bankers are looking for when evaluating a loan request. That confusion can only be compounded today by all the talk of tight credit. Credit is absolutely available today. In order to avail themselves to it, business owners should be aware of the process that goes into considering a loan request and the type of information and documentation they will be expected to provide.
When a business owner is seeking a loan they should be prepared to discuss:
1. The amount of the loan
2. The purpose of the loan– to purchase assets, payoff old debts, fund operating expenses, buyout a partner, etc
3. The security being offered for the loan – collateral such as real estate, equipment, inventory, accounts receivable, stocks, bonds, etc
4. The term of the loan – how long will it take to repay the loan
5. The company’s financial condition – past, present and future
The banker will typically look for documentation to support the loan request and measure the relative financial health of the business and the principals…documentation such as:
1. Federal tax returns (2-3 years) for both the business and principals
2. Year-end financial statements (2-3 years)for the business
3. Year-to-date and projected financial statements
4. A personal financial statement – listing what the principals own & owe
5. Business bank statements (2-3 months)
Lending money is all about managing risk. To help bankers evaluate risk more completely they will typically test a loan request and accompanying financial data against the following criteria.
1. Character – Does the borrower exhibit character or integrity? Does the business and its owner have a good reputation in the community?
Does the borrower exhibit a good credit history? Does the business and its owner pay their creditors on time?
2. Capacity – Does the borrower exhibit the financial capacity to repay the loan requested? Is sufficient cash flow available to make the payments?
3. Capital – Does the borrower exhibit sufficient capital to support the loan requested? Is there sufficient cash for a down payment and for a cushion in case business gets slow.
4. Collateral – Can the borrower provide sufficient collateral to secure the debt? Are there assets such as real estate, equipment, A/R or inventory that can be pledged to the bank as security for the loan?
5. Conditions – Is the condition of the borrower, the borrower’s industry and the general economy favorable to the repayment of the loan? Are there aspects of the business, the industry or the economy that would negatively impact the ability to repay?
Loans for small businesses are available. Community banks are ready, willing and able to provide that much needed financing. But, now more than ever businesses must be able to provide the information and the documentation necessary for bankers to assess and mitigate the risks inherent in making loans. Being prepared before you apply is an important first step which will accelerate the process and increase your chances for an approval.
Monday, March 9, 2009
Will the economy ever recover?
Regardless of where interest rates are, what the value of your home is, how much money the government heaps on the problem or which “too big to fail” financial institution is bailed out next, attaining some level of stability is the key to halting the current downward spiral and getting us on the road to recovery. That is a certainty. What is currently uncertain and being debated daily is how we bring back that stability, how we promote public confidence, how we get banks lending and consumers spending. Is the current stimulus package the answer? Solving a credit crisis with massive amounts of additional debt seems counterintuitive, but there is no question something has to be done. Is nationalization of some banks the answer? Maybe. As the nation’s largest banks continue to seek and receive federal capital injections Uncle Sam is slowly becoming a majority shareholder. But, there are strings attached to government ownership. For instance, restrictions are being placed on the payment of dividends by those banks accepting TARP funds. Will that make it more difficult for those banks to attract and retain capital and will they ultimately be challenged to repay TARP? Is the creation of a “Bad Bank” or “Aggregator Bank” similar to the old Resolution Trust Corporation the solution for moving toxic assets off of bank’s balance sheets? This strategy, while expensive to tax payers, worked in the 1980’s with failed S & L’s. There are troubling differences today, though. The assets taken over from failed S&L’s were relatively easy to price and sell. The toxic assets affecting bank performance today are substantially different--countless types of credit derivatives—which are dizzyingly complex. What’s more, today the proposed agency would be taking over failed assets of existing banks rather than simply selling off the assets of failed institutions. A protracted negotiation process between the proposed agency and the banks whose troubled assets it is attempting to buy could lead to endless delays. Finally, are auto makers, investment bankers and mortgage lenders really too big to fail or is it time to endure the pain of an overall economic adjustment rather than masking the problems with massive debt that may have much larger, more long lasting effects on our economy a few years from now?
Given these issues and the uncertainty about what will work, attempting to predict exactly where the banking industry and the national economy are headed is impossible. Exacerbating the effort is the fact that besides all of the unanswered issues and questions in order to know where it is we are going, we really need to know where we are, and where the economy and the financial industry are changes almost daily. Obviously, then we need to find a point of stabilization, we need to identify the “bottom” of the market and apparently we aren’t there yet. And no one is speaking out to venture a guess about when we will be.
To the contrary, the closest we seem to get in terms of defining the end of the problems and the beginning of recovery are daily comments such as those offered by Newt Gingrich in his remarks recently at a breakfast with reporters and columnists organized by the Christian Science Monitor in which the former House Speaker suggested we are “going to go off a cliff”. “This is a much more profound problem than people think” said Mr. Gingrich. He went on to reference sources who predicted $4 trillion in bailouts before it’s all over and…another three to five years, at a minimum, of working our way through this”.
Whether a cliff or $4 trillion in bailouts is in our future remains to be seen. (It feels too many people that we leapt off the cliff months ago) The more important issue now is where is the bottom of this crisis? Clearly, creating confidence and stability is the key to finding the bottom and moving toward a recovery. Some analysts are clear about the importance of restoring faith in the system but very careful about predicting when it will happen. George Van Horn a senior analyst with IBIS World (a market research organization specializing in long range forecasting of industries and the business environment at large) was quoted in Chief Learning Officer Magazine saying, “Stability is the first issue…”. He went on to say “If the stimulus plan does help add stability, maybe you’ll see it by the second half of this year. [And] with stability will come confidence, and the economy will start to recover as we go through 2010”. As with most predictions today stability is the answer but when and how this will happen is filled with “if’s” and “maybe’s”. We will have to wait and see.
Stability, though, is the key and an industry that has continually contributed to that stability and holds the financial answers for most small businesses is community banking. Community banking has expanded even in this recessionary economy. Unfortunately, the negative headlines lump all banks together. Many of the troubled “banks” are actually not insured depository institutions, but rather Investment Banks, or Mortgage Banks. And those insured depository institutions that are failing comprise a small segment of the industry usually made up of “too big to fail” megabanks. What isn’t reported enough is that community banks make up 98% of all banking institutions, that these banks are locally owned and operated and that they are well capitalized. "Community banks are locally owned, and their assets are being put to use in the community in such products as loans to small business and consumer loans," explains Aleis Stokes, director of public relations for the Independent Community Bankers of America (ICBA). "They are competitive in rates.., understanding [of] the marketplace, and willing to support the local community in challenging times."
So, if you want more detailed information about the state of our economy and the prospects for and timing of a recovery stay tuned. But, if you are looking for a place to conduct your personal and business banking and for banking professionals who care more about relationships than simply accepting financial transactions look to community banks.
Given these issues and the uncertainty about what will work, attempting to predict exactly where the banking industry and the national economy are headed is impossible. Exacerbating the effort is the fact that besides all of the unanswered issues and questions in order to know where it is we are going, we really need to know where we are, and where the economy and the financial industry are changes almost daily. Obviously, then we need to find a point of stabilization, we need to identify the “bottom” of the market and apparently we aren’t there yet. And no one is speaking out to venture a guess about when we will be.
To the contrary, the closest we seem to get in terms of defining the end of the problems and the beginning of recovery are daily comments such as those offered by Newt Gingrich in his remarks recently at a breakfast with reporters and columnists organized by the Christian Science Monitor in which the former House Speaker suggested we are “going to go off a cliff”. “This is a much more profound problem than people think” said Mr. Gingrich. He went on to reference sources who predicted $4 trillion in bailouts before it’s all over and…another three to five years, at a minimum, of working our way through this”.
Whether a cliff or $4 trillion in bailouts is in our future remains to be seen. (It feels too many people that we leapt off the cliff months ago) The more important issue now is where is the bottom of this crisis? Clearly, creating confidence and stability is the key to finding the bottom and moving toward a recovery. Some analysts are clear about the importance of restoring faith in the system but very careful about predicting when it will happen. George Van Horn a senior analyst with IBIS World (a market research organization specializing in long range forecasting of industries and the business environment at large) was quoted in Chief Learning Officer Magazine saying, “Stability is the first issue…”. He went on to say “If the stimulus plan does help add stability, maybe you’ll see it by the second half of this year. [And] with stability will come confidence, and the economy will start to recover as we go through 2010”. As with most predictions today stability is the answer but when and how this will happen is filled with “if’s” and “maybe’s”. We will have to wait and see.
Stability, though, is the key and an industry that has continually contributed to that stability and holds the financial answers for most small businesses is community banking. Community banking has expanded even in this recessionary economy. Unfortunately, the negative headlines lump all banks together. Many of the troubled “banks” are actually not insured depository institutions, but rather Investment Banks, or Mortgage Banks. And those insured depository institutions that are failing comprise a small segment of the industry usually made up of “too big to fail” megabanks. What isn’t reported enough is that community banks make up 98% of all banking institutions, that these banks are locally owned and operated and that they are well capitalized. "Community banks are locally owned, and their assets are being put to use in the community in such products as loans to small business and consumer loans," explains Aleis Stokes, director of public relations for the Independent Community Bankers of America (ICBA). "They are competitive in rates.., understanding [of] the marketplace, and willing to support the local community in challenging times."
So, if you want more detailed information about the state of our economy and the prospects for and timing of a recovery stay tuned. But, if you are looking for a place to conduct your personal and business banking and for banking professionals who care more about relationships than simply accepting financial transactions look to community banks.
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