May 13, 2013 • An Advertising Supplement to the San Fernando Valley Business Journal

Banking &Finance

By MARIANNE CEDERLIND

Selecting the right bank should be ap-proached in the same way as any other im-portant business decision. Whether for busi-

ness or personal use, it is important to select abank for the right reasons. On the surface, mostbanks seem very much the same but know thereare significant differences related to structure andservice culture for each type of organization. Largebanks, regional banks, community banks and cred-it unions all have their own unique advantagesand disadvantages. Understanding these differ-ences can help insure that you get what you needfrom whichever financial institution you select.

When choosing a bank, the most importantquestion should probably not be related to the sizeof the organization. Rather, questions regardingthe unique services and delivery channels provid-ed should be the starting point. While all financialinstitutions provide the same menu of basic servic-es – checking, savings, credit, online banking –how these products are delivered varies greatly.

One of the greatest advantages of big banks andlarger regional banks has always been conven-ience. This used to mean a branch on every streetcorner, but today it translates to ATM access andelectronic banking. Because big banks have theability to invest tremendous resources toward theenhancement of electronic delivery channels,they’ve been able to keep pace with consumers’ever growing demand for better, faster access andhave done so much faster than their communitybank and credit union counterparts.

Additionally, big banks facilitate big business.Megacorporations and international trade-based com-panies depend upon the networks and capabilities ofthe big banks to manage day-to-day operations.

Small to mid-sized businesses and consumersboth find community banks offer a much more‘hands on’ experience for their clients. While com-munity banks are putting tremendous emphasis onbuilding more robust online banking platforms andenhancing delivery channels, their business modelis still built upon personal service as well as acces-sibility to decision makers and senior management.

Remember the days when you could walk intoa bank and everyone knew your name? Well, rela-tionship banking is built upon that very principleand even in today’s high tech, fast paced environ-ment, there are still banks that greet you by namethe moment you walk through the door. That’sbecause most community banks focus on buildingrelationships with their clients and members.

When applying for credit with a community

bank, you will generally sit down ‘face to face’with your lender to talk about the loan and theloan decision is made locally. If you have a ques-tion on your account, you can call your branchand ask someone you know for assistance.

Small to mid-sized businesses generally findsthe structure of a community bank to work bestfor them. Developing a relationship with yourbanker can prove to be a tremendous asset in theday-to-day operation of a growing business.

A true relationship banker is really not veryinterested in getting a single account, or funding asingle loan – those are simply transactions. A rela-tionship banker wants to earn their place as theirclient’s trusted advisor and is going to work hardto get to know all they can about their client’sindustry, their business as well as their financialneeds and goals and will then strive to provide asuite of comprehensive solutions that will meetthose needs.

In fact, banks serve a much broader functionthan simply institutions for financial transactions.Often there’s the less known side of banking: thelistening, coaching and mentoring side that distin-guishes a trusted advisor from their transactionalcounterpart.

When it comes right down to it, selecting theright bank for your family or company should beapproached as a business decision. Service feesand interests rates should be carefully weighedagainst convenience and benefits. The leastexpensive will not always provide you with thebest value. Start by asking yourself, “What am Ilooking for in a bank?”

Spend some time determining what services aremost important. Do you prefer the personal touchof dealing with someone you know, or is havingaccess to a customer service line 24/7 more impor-tant to you? Are you looking for a trusted advisor,someone helping you strategically plan yourgrowth? How you answer these types of questionswill go a long way toward determining what bankis right for you.

Marianne Cederlind is the senior vice president and chiefbusiness banking officer of Mission Valley Bank, a local-ly-owned, full-service, independent, commercial bankserving the San Fernando and Santa Clarita Valleys. Shewas named as one of the Valley’s “Most Trusted Advisor– Business Banker” by the San Fernando Valley BusinessJournal in 2012. Cederlind can be reached at (818)394-2300 or via MissionValleyBank.com.

Banking – One Size Does Not Fit All

Questionsregarding theunique servicesand deliverychannels providedshould be thestarting point.While all financialinstitutionsprovide the samemenu of basicservices –checking, savings,credit, onlinebanking – howthese productsare deliveredvaries greatly.

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BY GARRETT DEVINE

In the first quarter of this year, investorsare shedding some of their gloom.

According to the latest Wells Fargo/Gallup Investor and Retirement OptimismIndex, economic optimism amongst in-vestors across-the-board has increasedafter some declines in the fourth quarterlast year. However, the report also revealsa widened gap in optimism betweenretired and non-retired American’s.

Highlighting some specifics, the indexshows that the optimism of non-retireesstands at +38 compared with +7 amongretirees, and this 30-plus point differencecomes after six quarters of closely alignedsentiment between the two groups of investors.

Why the gap? As we dig deeper intothe report findings, we can see thattoday’s economic and political environ-ment is impacting the sentiment of thesetwo groups in unique ways.

Low interest rates

Overall, 64% of investors view lowinterest rates as good for consumers andbusinesses, with the benefits outweighingcosts. Seventy-four percent also see howlow interest rates are having a positiveimpact on housing. In the past two years,33% of those polled took advantage oflow rates by refinancing their homes, andwhen asked why they refinanced, 43%did it to reduce the years of their mort-gage, and 32% did it to save money.

While 51% of retirees said they aresupportive of low rates, half of retireesagreed with the statement that low ratesare either doing “a great deal” or “quite alot” of harm to savers and investors. Add-ing to this perspective, 35% of retirees al-so worried that low rates will cause themto outlive their money in retirement.

Our response to retirees is to encouragecontinued planning and consideration ofappropriate market exposure in asset allo-cation based on their circumstances.

Market attitudes

About half (51%) of all investorsresponding to our survey agreed thatnow is a good time to invest in the stockmarket. They’ve been watching the samenews reports we have been, seeing theS&P rise 143 points (a 10% increase) inthe first quarter of this year. People arealso recognizing the improved relation-ship between the market and the overalleconomy, with 56% of all investors agree-ing that the rising market is having a pos-itive impact on their confidence level inthe U.S. economy.

Fifty-four percent of non-retirees toldour surveyors that it’s a “good time” toinvest in the market, while retirees in oursurvey demonstrated more hesitancy.Forty-three percent agreed that now is a“good time” to get into the stock market.

This follows what we typically see inour business as people in their workingyears tend to take on more risk the fur-ther they are from retirement.

Preparing for higher taxes

Investors are paying attention to thedialogue in Washington, D.C., aboutlong-term fiscal solutions and the proba-bility of both spending cuts andincreased taxes. If some of these resolu-tions come to pass, there will be anincreased need for significant retirementplanning discussions and sharp increasesin retirement savings.

The 401(k) plan continues to be a ma-jor vehicle for retirement savings, espec-ially as company-sponsored pensionsfade away and Social Security debatesrage on. We continue to see people leanon their 401(k) plans as the main way tobuild up a secure retirement nest egg.

In terms of public policy, 59% ofinvestors say that they are more interest-ed in seeing political confrontations inthe nation’s capital come to end than inpotentially getting their way on futuregovernment spending, taxing, and federal

budget deficits. This reflects their beliefthat the showdowns in Washington havehad a negative impact on the overalleconomy, on business confidence and onconsumer confidence.

Power of the plan

At Wells Fargo, we always emphasize theneed for establishing a written financial re-tirement plan. Despite the obvious benefitsof creating a thoughtful plan – financial orotherwise – data reveals that only 29% ofAmericans have a written plan.

A second, equally important step is toregularly evaluate the plan. Retirees andthose in the workforce need to considerhow current interest rates, market fluctu-ations or tax policy debates have animpact on planning and make changesaccordingly. It’s not realistic to think thefirst draft of a retirement plan will notneed revisions over time, somethinginvestors need to remember as they movethrough different stages of life, includinginto retirement.

Garrett Devine is a Senior Vice PresidentWealth Advisor with Wells Fargo’s ThePrivate Bank. For more information contactgarrett.devine@wellsfargo.com or (310) 285-5981.

MAY 13, 2013 AN ADVERTISING SUPPLEMENT TO THE SAN FERNANDO VALLEY BUSINESS JOURNAL 23

Investor Optimism Risesbut Retirees see the Economyin a Different Light

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While 51% of retirees

said they are supportive

of low rates, half of

retirees agreed with

the statement that low

rates are either doing

‘a great deal’ or ‘quite

a lot’ of harm to savers

and investors.

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24 AN ADVERTISING SUPPLEMENT TO THE SAN FERNANDO VALLEY BUSINESS JOURNAL MAY 13, 2013

BY KEITH T. ZIMMET

The purchase or sale of a hotel inmany ways is like buying or sell-ing multiple businesses.

In addition to real estate, hotels ofteninclude restaurants, gift shops, retailstores, resort amenities such as golf andtennis, and if located on a lake, river, orocean, aquatic amenities such as fishing,boating, and sailing. In some locations acasino, concert venue, or conventionspace may also be included within the“hotel business”. This article describesseveral key items that should be consid-ered when buying or selling a hotel.

Traditional Real Property Concerns

If the buildings and/or land are beingsold, then many traditional real estate is-sues need to be carefully considered. Is theproperty owned in fee simple, or is there aground lease? Are there title issues such asrights of way or shared easements? Is thehotel and resort amenities owned by dif-ferent entities? Are there any environmen-tal issues such as underground storagetanks or the presence of asbestos; structur-al, roof, elevator, or parking lot problems?

Retail Shops and Restaurants

Many hotels have leases involving retailshops and restaurants. These leases will

need to be assigned to a buyer and mostlikely will need to be subordinated to anylender financing the buyer’s acquisition. Ifthe hotel is actually operating the retailshops or restaurants, rather than leasing toother operators, then additional issues arisesuch as making certain the buyer assumesor acquires the necessary permits andlicenses, including one or more CaliforniaState Board of Equalization Seller’s Permit.

Liquid Assets

Hotels typically have sizable liquoroperations, including the sale of liquor,wine, beer, and other alcoholic beverages.The California Department of Alcohol

Beverage Control will need to beinvolved in processing any application bythe buyer for a license to sell such items.

The sale of such liquor inventory andthe coordinated effort between seller andbuyer in ensuring that the buyer is prop-erly licensed under California liquor lawis usually transacted through a LiquorPurchase and Sale Agreement, completelyseparate and apart from the main HotelPurchase and Sale Agreement.

Management Agreements

Hotels today are often owned by oneentity and managed by another. Manyhotels which bear the name Marriott,Four Seasons, Hyatt, etc., are actuallyowned by one entity and managed bysuch globally known hoteliers.

These management agreements will needto be carefully reviewed to confirm that suchagreements are assignable and that the longterm benefits and obligations coincide withthe buyer’s long-term strategic plans for theproperty. It is possible that the buyer wantsto bring in new management, in which casethe existing management agreement willneed to be reviewed to determine the expira-tion date or termination provisions.

Employee Liabilities

Such management agreements oftenhave a major impact on employee issues.Hotels tend to be very labor-intensiveoperations. Hotels often employ hun-dreds of workers in housekeeping, frontdesk, concierge, food and beverage, valetparking, maintenance, security, sales andmarketing, accounting, human resources,and general management. Whoseemployees are these, the hotel owner’s orthe management company’s?

The transfer of ownership of the hotelcould give rise to many employment lawissues, including notice requirementsunder the federal Worker Adjustment andRetraining Notification Act (the “WARNAct”), and under similar laws in Califor-nia. Accrued vacation and sick time,health, life, and disability insurance lia-bility, and pension plan liability, all mustbe considered by both seller and buyer.

Furniture, Fixtures & Equipment

Hotels usually have large holdings offurniture, fixtures, and equipment. Hun-dreds of beds, couches, dressers, televi-sions, tables, and artwork fill a hotel. Inaddition, large amounts of expensive res-taurant equipment, computer hardware,and security systems are commonplace.

Hotels often finance the acquisition ofsuch equipment, whether through conven-tional financing or lease financing. In eitherevent, like the management agreements, abuyer of a hotel will need to review the ap-plicable financing documents to assure thatsuch agreements are assignable, particularlywith respect to lease financing. In addition,seller representations and warranties relat-ing to such equipment are often the subjectof much negotiation.

Accurate inventories and allocations ofexpenses and revenues become even moreproblematic in the sale of any businesswhich operates twenty-four hours a day.The timing of the closing must be care-fully planned and coordinated betweenseller and buyer. Adjustments will need tobe made for deposits held, as well as forfood and beverages purchased days priorto a closing for an event post-closing.

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Keeping business operations running smoothly.

Checking In, Checking Out: The Financial Issues in Buying or Selling a Hotel

BANKING & FINANCE

Continued on page 26

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MAY 13, 2013 AN ADVERTISING SUPPLEMENT TO THE SAN FERNANDO VALLEY BUSINESS JOURNAL 25

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26 AN ADVERTISING SUPPLEMENT TO THE SAN FERNANDO VALLEY BUSINESS JOURNAL MAY 13, 2013

Consumer delinquencies declinedsignificantly in last year’s fourthquarter, with bank card delinquen-

cies falling to levels not seen since thethird quarter of 1994, according to resultsfrom the American Bankers Association’sConsumer Credit Delinquency Bulletin.

During the fourth quarter of 2012,bank card delinquencies fell 28 basispoints to 2.47 percent of all accounts –an 18-year low and well below the 15-year average of 3.87 percent.

The composite ratio, which tracks

delinquencies in eight closed-end install-ment loan categories, fell 17 basis pointsto 1.99 percent of all accounts in thefourth quarter, below the 15-year averageof 2.39 percent. The ABA report defines adelinquency as a late payment that is 30days or more overdue.

James Chessen, ABA’s chief econo-mist, attributed the improvement to con-sumers’ continued efforts build a finan-cial buffer against economic uncertainty.

“Consumers continue to carefullymanage their finances in an effort to get

debt levels under control and build up asecure financial base,” Chessen said.“While this conservative approach tocredit may slow economic growth in theshort-term, it portends stronger, moreconsistent growth in the future. Thesharp decline in delinquencies reinforcesthe notion that the economic recoveryhas become more self-sustaining and ison a path to increased growth.”

Chessen noted that delinquencies inall three home-related loan categories –property improvement loans, home equi-ty loans and home equity lines of credit –fell in the fourth quarter. This is the firsttime all three of these categories haveseen delinquencies decline since thefourth quarter of 2011.

“While home-related delinquenciesremain at elevated levels, even one quar-ter of declines could signal the start of aslow, but steady improvement. Fallingdelinquencies are another indicator ofthe housing market’s nascent recovery.”Chessen said.

While Chessen found the continueddecline encouraging, he cautioned thatfuture challenges could make it difficultfor some consumers to meet their finan-cial obligations.

“Make no mistake about it, a greatdeal of uncertainty still lingers over thiseconomy,” Chessen said. “Furloughsfrom sequestration, falling disposableincome and increased healthcare and reg-ulatory costs for businesses could lead tochallenges in the year ahead.”

The fourth quarter 2012 compositeratio is made up of the following eightclosed-end loans. All figures are seasonal-ly adjusted based upon the number ofaccounts. Closed-end loans include:• Personal loan delinquencies fell from2.14 percent to 2.08 percent.• Direct auto loan delinquencies rosefrom 0.95 percent to 0.96 percent.• Indirect auto loan delinquencies fellfrom 2.08 percent to 1.85 percent.• Mobile home delinquencies rose from3.51 percent to 3.53 percent.• RV loan delinquencies held steady at.27 percent (no change).• Marine loan delinquencies rose from1.55 percent to 1.57 percent.• Property improvement loan delinquencies

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Consumer Delinquencies DeclineSignificantly in Fourth Quarter 2012

BANKING & FINANCE

Continued from page 24

Continued on page 27

of resort amenities, casinos, and conven-tion centers bring even further complexi-ty to the purchase and sale of a hotel.

Being prepared, in advance, toaddress the many legal and businessissues which arise during such a trans-action will save time and money, andwill assist everyone involved in get-ting a good night’s sleep.

Keith T. Zimmet, Esq. is the ManagingShareholder of Lewitt Hackman, Chairsthe Firm’s Commercial Finance PracticeGroup, and is a member of the Firm’sCorporate Practice Group and Real EstatePractice Group.

Loan GlossaryIndirect auto loan: loan arrangedthrough a third party such as anauto dealer.

Direct auto loan: loan arranged directly through a bank.

Delinquency: late payment that is 30 days or more overdue.

Bank card: a credit card provided by a bank.

Closed-end loan: a loan for a fixedamount of money with a fixedrepayment period and regularlyscheduled payments.

Open-end loan: a loan with a fixedamount of available credit but a balance that fluctuates depending on usage such as a line of credit.

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MAY 13, 2013 AN ADVERTISING SUPPLEMENT TO THE SAN FERNANDO VALLEY BUSINESS JOURNAL 27

The American Bankers Association tes-tified last month on the critical stepsthat it believes are needed to reduce

community banks’ regulatory burden andassure the country has a healthy and vibrantcommunity banking sector in the future.

Kenneth Burgess, chairman of First Cap-ital Bank of Texas, testified on behalf ofABA before the House Subcommittee on Fi-nancial Institutions and Consumer Credit.

In his testimony, Burgess said that it’stime to move from good intentions tosubstantive changes that will have tangi-ble results for community banks. Henoted that recent actions taken by regula-tors on capital standards and mortgagelending can have unintended conse-quences that slow economic growth.

“Just when regulators want to seebanks grow, they raised capital standardsand now are proposing Basel III standardsthat will surely force community banks toreduce lending,” Burgess said. “Just whenthe housing market needs mortgageloans, new rules are imposing costs sohigh that many community banks willlikely scale back their mortgage opera-tions. These concerns may even force mybank and others like it out of mortgagelending altogether.”

Burgess praised the recently passedATM Placard Bill for helping reduce com-munity banks’ regulatory burden, and ap-plauded the efforts of Rep. Luetkemeyer(R-MO) and members of the subcommit-tee in moving the Eliminate Privacy Noti-fication Act through the House. But Bur-

gess testified that more can and should bedone relating to bank examinations, capi-tal requirements, mortgage rules and mun-icipal advisor registration requirements.

“We need an exam process that pro-vides consistent, timely exam reports, aswell an appeals process free from thethreat of retaliation,” he said, expressingsupport for H.R. 1553 sponsored byChairman Capito (R-W.Va.) and Rep.Maloney (D-N.Y.). “In addition, Basel IIIshould be reformed so that capital rulesenhance, not inhibit the role of commu-

nity banks. Current proposals wouldintroduce significant volatility into bankcapital levels and force many banks tochange their core business model due tounfair risk weightings.”

Burgess concluded by calling for sim-pler mortgage rules that encourage banksto make loans.

“New mortgage rules are creating severelegal risks, diminishing the loans we canoffer so that fewer people will be able toget loans,” Burgess said. “The potential foreven higher legal risks in the future will

likely force many community banks to exitmortgage and retail lending altogether.”

For a copy of Burgess’ full testimony,visit the American Bankers Associationwebsite at www.aba.com.

The American Bankers Association repre-sents banks of all sizes and charters and isthe voice for the nation’s $14 trillion bankingindustry and its two million employees. Themajority of ABA’s members are banks withless than $165 million in assets. Learn moreat aba.com.

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fell from 0.89 percent to 0.83 percent.• Home equity loan delinquencies felfrom 4.20 percent to 4.03 percent. Inaddition, ABA tracks three open-end loancategories, which include:• Bank card delinquencies fell from 2.75percent to 2.47 percent• Home equity lines of credit delinquenciesfell from 1.93 percent to 1.85 percent• Non-card revolving loan delinquenciesrose from 1.28 percent to 1.31 percent

Consumer Tips

For borrowers having trouble payingdown debts, ABA advises taking action —sooner rather than later — to solve debtproblems with the following tips:• Talk with creditors – the sooner you talkto them, the more options you have;• Don’t charge more purchases until yourproblems are solved;• Avoid bankruptcy – it’s a short-termsolution with long-term consequences;and Contact Consumer Credit Counsel-ing Services at 1-800-388-2227.

For more information on budgeting, savingand managing credit, visit the ABA Educa-tion Foundation’s consumer web page athttp://www.aba.com/Consumers/Pages/ConsumerInformation.aspx.

The American Bankers Association represents banks of all sizes and chartersand is the voice for the nation’s $14 trillion banking industry and its twomillion employees. Learn more at aba.com.

Continued from page 26

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28 AN ADVERTISING SUPPLEMENT TO THE SAN FERNANDO VALLEY BUSINESS JOURNAL MAY 13, 2013

Now that the 2012 tax season is inthe rear-view mirror, it’s a goodtime for small business owners to

reassess their company’s financial healthand their relationship with their bank.The American Bankers Association offersthe following tips to help small businessowners enhance their current bankingrelationship or choose the best bank fortheir needs.

Many small business owners havebeen wondering what it takes these daysto get a bank loan. One way to influenceyour bank’s decision is to establish a per-sonal relationship with your banker thatshows him or her just how valuable yourbusiness is.

Banks value long-term, profitable busi-ness banking relationships. Bankersreward these firms by extending creditwith the most favorable interest rates.These businesses and their bankersunderstand that developing a meaningfulrelationship is a two-way process—yourbanker has a role to play and so do you.

So how do you know if you have ameaningful and valued relationship withyour bank? To find out, take the follow-ing “relationship test.” Respond to theseven statements below with “true” or“false.”1. My firm has a bank relationship man-ager assigned to our account and we havecontact (by phone or in person) at leastonce per quarter to update the bank onrecent developments at our firm and

within our industry.2. Our bank relationship manager under-stands our industry, our position in theindustry, our firm’s value proposition,where we are today and where we’d liketo be in the future.3. We provide our banker with updatedfinancial information (historical and pro-jected balance sheet, income statement,cash flow information to include projec-tion assumptions and commentary onactual performance) regarding ourprogress toward achieving our goals on atimely basis.4. Our senior management team meets

annually with our relationship managerand his/her boss to discuss our firm’sfinancial performance and challengesand to understand the bank’s perceptionof our performance.5. Our relationship manager proactivelybrings us ideas to help us achieve ourgoals.6. We understand how the current eco-nomic crisis has affected our bank andour relationship with the bank (i.e., theavailability of credit to our firm and thesafety of our deposits).7. Our firm makes sure that our banker isaware of all of our business with the bank

(e.g., both business and personal) andthat it makes money on our total bank-ing relationship. In addition, our firmprovides our banker with referrals toother profitable businesses.

If you were able to respond “true” to allseven of these statements, you have posi-tioned your firm well with your banker.

If you answered “true” to five or six,you still have room for improvement indeveloping a meaningful dialogue withyour banker and benefiting from his orher advice and counsel.

If you answered “true” to four orfewer, you have not positioned your firmwell with your banker and are puttingyour firm at a competitive disadvantagein terms of:• receiving the funds you need to growand prosper• obtaining the best rates available for thefinancial products and services your busi-ness needs to operate; and• receiving “ideas and advice” to helpyou achieve your desired business goals.

Your firm should seek a bank thatrewards a relationship approach to doingbusiness with them, and a banker who isable to give your firm the financial advicethat it needs to survive and thrive intoday’s ever changing economy. Inreturn, your firm should reward this bankwith your business and loyalty.

Information for this article was provided by theAmerican Bankers Association.

Tips for Small Business Owners:Assessing Your Banking Relationship

BANKING & FINANCE

Many small business

owners have been wondering

what it takes these days to

get a bank loan. One way to

influence your bank’s decision

is to establish a personal

relationship with your

banker that shows him or

her just how valuable

your business is.

22_29_sfvbj_banking_finance_supplement.qxp 5/8/2013 7:17 PM Page 28

The American Bankers Associationhas released the following tips tohelp small business owners best

position themselves to obtain small busi-ness bank loans. These tips provide a rareglimpse into how bankers think and areintended to help small business ownersdevelop a mutually beneficial relation-ship with a bank, prepare to get loansand evaluate offers.

1. Get to know bankers at several financial

institutions in your community.

Before requesting a loan, find outwhich financial institutions in your mar-ket make loans to firms like yours. Not allbanks specialize in business loans. Somespecialize in lending only to firms in cer-tain industries. Others lend only to thosein certain stages of the business life cycle(no startups, for example). Work withbankers who understand your industryand find out how the current financialcrisis has affected credit availability inyour community. Not all banks have beenequally affected by today’s financial crisis.

Another reason to deal with banks experi-enced in your industry relates to the finan-cial advice they can offer. Because thesebankers work with firms facing the sameindustry-related problems that may chal-lenge you, they’re in a better position to pro-vide helpful advice and financial productstailored to your firm’s needs. Many times theadvice a banker gives is far more importantthan the product or service they sell. Seek abanker who can give financial advice thatwill help you survive and thrive in today’seconomy. In turn, you should reward thatbanker with your business and your loyalty.

2. Be able to articulate your firm’s “value

proposition” to its target markets and your

business plan to reach them.

If you can’t clearly articulate whyother companies or customers should dobusiness with you and how you’ll effec-tively compete in your chosen targetmarket segments, the chances of gettinga loan are slim.

Develop a business plan that has threedifferent scenarios: best case, most likelycase, and worst case. You want the bankerto understand all three since you’re ask-ing for support through good times andbad. Also, be prepared to discuss in detailthe assumptions that underlie each ofthese scenarios.

3. Think like a banker.

Understand the risks of operating inyour industry. Have a plan to mitigatethose risks and share it with your banker.Bankers are going to do a risk analysisanyway, so it’s important to help them.Most likely, you can provide a perspectivethat the banker hasn’t considered. It’simportant for the banker to see that yourecognize the risks of operating in yourindustry and that you have a plan fordealing with them.

4. Develop at least two ways to repay the loan.

Bankers look for primary and second-

ary loan repayment sources. For the sakeof your business, you should, too. You arein the best position to determine possiblerepayment alternatives. Be sure to discussthese options with your banker beforethe loan is made. Secondary repaymentresources could include the pledging ofbusiness or personal collateral as well asthe addition of a loan guarantee by thefirm’s owners, suppliers or customers.

The more certainty that the banker hasthat the loan will be paid “as agreed,” themore likely it will be that you not onlyreceive a favorable loan decision, but alsothe best interest rate. Smart business own-ers understand that now is the time tothink about alternative repayment sources,not when their business gets into trouble.

5. Don’t ask for loans that should be funded

with equity injections.

Bankers aren’t paid to take equityrisks; they get paid to make loans thatwill be repaid on time.

The amount of equity you need tooperate your business will depend on sev-eral factors. One of the most importantrelates to your industry and what roleyour business plays in that industry. Theamount of equity required for a manufac-turer will be different from that requiredto run a wholesale distribution business.Retailers in the same industry will alsohave different equity requirements.

The stability of the industry is also animportant factor influencing the amountof equity needed. Firms in stable indus-tries need less equity than firms operat-ing in industries undergoing rapidchange. The reason is that firms in stableindustries can carry a higher level of debtdue to the greater certainty of their rev-enue streams.

Another factor that determines theamount of equity required for your busi-ness relates to your firm’s business model.Some firms offer easy credit terms tobuild market share and increase sales.Other firms operate on a cash-only basis.The sales terms your firm offers its cus-tomer base has an important impact onthe amount of equity that your businesswill need to operate.

If your product or service is in greatdemand, consider asking your customersfor upfront deposits on pending orders orextending favorable pricing terms to cus-tomers who pay their invoices within 10days of receipt.

Another option is to ask suppliers forfavorable terms of sale. Ask if they’ll letyou pay invoices later with no interest orgive you discounts for paying invoicesearly. Any additional customer or suppli-er financing reduces the amount of per-manent working capital that needs to befunded with equity contributions fromyour firm’s shareholders.

The American Bankers Association representsbanks of all sizes and charters and is thevoice for the nation’s $14 trillion bankingindustry and its two million employees.Learn more at aba.com.

Five Tips to IncreaseYour Chances of Getting a Small Business Bank Loan

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