Thursday, October 30, 2014

A Conversation with the FDIC

To my surprise, I was contacted recently by a representative from the FDIC, Federal Deposit Insurance Corporation, who was conducting a review of a local bank in Spokane. I had heard of the FDIC, (mostly when hearing or reading a bank advertisement, such as Member FDIC) but had never interacted with a representative before. 

The gentleman stated that he was performing a Community Reinvestment Act review of a bank and asked if I could participate in a short survey.  He said that part of the evaluation requirements are to interview a member of the community in which the bank is located, and he often chose to talk with SBDC business advisors since we have a variety of business clients, relationships with banks, and an overall impression of economic indicators and performance.


According to its mission, the Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection, and managing receiverships.

The interviewer asked numerous questions about community economic development and banking conditions, general bank regulations, local credit unions and small business lending.  I don't remember the entire dialogue, but here are some of his questions and my replies, paraphrased:

Q:  What is your impression of the small business lending climate and general economic conditions?

A:  Some of the companies that made it through the recession are finally starting to breakthe easier.  Lending is still not easy for many small businesses, especially those start ups seeking small loans (under 100,000).  We know that banks are lending, yet we still have clients that are not able to get bank loans.  


Q:  Do you think bank lending requirements are clear?

A:  Yes, the requirements are usually pretty straightforward. There are a couple of challenges however.  First, a new business owner often does not understand the loan process or requirements or even how to apply for a business loan or line of credit.  A second challenge is that many small business owners have a hard time coming up with the owner cash contribution and in some cases, my clients have been given inconsistent information from lenders.  For example, I have had clients that were told they would need anywhere from 15-50% cash down from different lenders, or not informed of the capital requirements up front and were turned down for a loan.

Q:  Do you think the Spokane area banks are active in economic development and driving community and capital investment?

A:  Yes!  Not only are the local banks and credit unions active in the community, they are very strong supporters of community activities and small business.  There are some neighborhoods that are undergoing great re-development, such as the Perry Street District, and while a bank may not be opening a branch in that particular neighborhood, I know that they are lending to business owners to build and start new businesses.  The City also has made a dedicated effort to emphasize development in certain sections of town and has seen some success with that strategy.

Q:  Have you heard of any instances of minority or underserved populations being treated unfairly due to race, gender or other circumstances?

A:  No, I have not had clients that felt they were treated unfavorably due to race, gender or other minority standing.  Start-ups face an additional challenge in seeking financing and that can be sometimes an uphill battle; some banks will not fund a start-up or new business at all due to the riskiness. 

Final comments:  We also talked about the evaluation process and the interviewer mentioned that in some communities where there have been Community Reinvestment Act funds, he also speaks with representatives to identify housing needs and trends to get a comprehensive economic snapshot.

It was very interesting from my end to take part in the interview.  The FDIC site has a lot of informative articles, industry statistics and tools for borrowers, creditors and depositors. You can read more about the FDIC bank examination process on the agency website.

Wednesday, October 29, 2014

3 Simple Reasons to Write a Business Plan

I recently got invited to speak to an entrepreneurship class at Washington State University in Pullman to discuss reasons why I am in favor of business plans.  The students were engaged and had a lot of great questions and even more exciting, many had plans to start a business someday and a few already had.

Instead of just giving an explanation of why I think business plans are important, I kept it to three short reasons, and added four red flags that I frequently see in business plans.  One question we often get is, "How many pages does it have to be?".  There is no right answer; it depends on the complexity of the business and purpose of the plan.  I have read over 100 business plans and would rather read a well-written succinct plan than one written to fill a certain number of pages.

Here are three simple reasons that I encourage my start-up clients to prepare a business plan:

1.  Credibility
In preparing a business plan, the writer needs to tell a story and clearly describe what the business does, who the owners are, what problem it solves or need it fills, the market opportunity and financing requests.  Putting a plan into writing adds a level of credibility and shows that the writer is serious about moving forward, rather than just thinking about it.


2.  Research
Developing a business plan is a great exercise for business owners to think through all phases of their business.  The exercise of writing a business plan is often times more valuable to use as a feasibility study than the plan itself.  For people that are thinking about starting a business, starting with financial projections can be an excellent way to evaluate the feasibility of going forward with a business idea.


3.  Funding
If you will be seeking any sort of outside financing, a lender or investor will want to see a business plan, or at least an executive summary.  A bank wants to see the strength of the team, what kind of market opportunities exist and most importantly, financial projections that show how the loan will be repaid.

There are numerous online free classes and templates on writing a business plan.  One other peice of advice is that business plans should be fluid documents, meaning I suggest using it as a strategic plan once the business is up and running.  Owners can use it to revise internal sales goals, plan for growth or look at new markets like exporting or government contracting.  SBA.gov offers an easy-to-use online portal where one can write a plan online.

Here is an excellent infographic created by the Washington State University Online MBA Program on business plan essentials.

Thursday, October 23, 2014

Eight Ways to Improve your Relationship with your Banker

We recently attended our State SBDC network training and received professional development training on a number of items to help our clients such as crowdfunding, web tools and succession planning. One session by my colleague, Linda Johnson, out of the Yakima center addressed tips for small business owners to maintain a good relationship with his or her banker.

If you will be seeking a loan, line of credit or negotiating terms with your banker, here are eight ways to improve or maintain a good relationship with your business banker.

What's the bottom line?

1.  Understand your financials.

This may sound simple, but is a fundamental factor in managing or owning a business.  If you do not understand your balance sheet, profit & loss statement and cash flow, it is time to learn.  Set aside time with your business advisor to go through your statements or schedule extra time with your CPA or bookkeeper.

If you have a business loan, you may have an annual review with your banker.  It is imperative that you are able to discuss your financial situation and explain what or why the numbers are a certain way.

2.  Make a profit.

Banks lend against profits and cash flow, not collateral.  Some business owners try to reduce taxable income and as a result, the business does not appear profitable.  This can be a big concern if you need to borrow money or if you plan to sell the business in the future.  A buyer doesn't want to buy a business that is not profitable and likewise a bank wants to make sure it will get its money back.

3.  Prepare a plan.

You hear a lot about the need for business plans, and I firmly believe in the value of preparing a business plan.  In this case, the suggestion is to prepare a business financial plan that addresses the short term goals and needs, contingency plan and a long-term plan.  Having a Plan B or contingency plan can reassure your banker that, in the event of an emergency, you will be able to repay the loan.

4.  Do not shop for a new banker unless you have done 1-3.

It may be tempting to avoid your banker and just start over.  You will be better in the long run if you take the time to work on the business rather than shopping around for a new banker.

5.  Be realistic about banker requests for collateral.

If you are seeking a loan for a start-up business, the banks will likely require some form of collateral in addition to the owner contribution.  I have had clients say that they do not want to put up their house for collateral, but that was the only way the bank would sign off on the loan.

6.  Establish and maintain trust with your banker.

Communication opportunities can help establish trust, discuss expectations and voice concerns.  If you are going to be late on a payment, be up front with your banker and keep him in the loop. Building trust (and credit) takes time and sharing good and bad news allows for open discussion and the opportunity to work together on solutions.  Be mindful of sharing too much; there is a difference between sharing relevant information and oversharing.

7.  Consolidate banking relationships.

You may be able to negotiate a better deal by consolidating banking services.  Ask around, get information on what your bank can offer. Banks want its customers to be profitable - it is a win-win!

8.  Keep a banker in reserve.

While not actively shopping for a new banker, it is not a bad idea to foster existing banking connections. She could be in your service club, an acquaintance or someone that you have worked with in the past.  Banks have been bought and sold, personnel change and if you are looking for a new relationship it might help to have some options.

Maintaining positive business banking relationships can benefit your business.  I have had a client get a loan for a new building by calling the banker and not having to jump through a lot of hoops, simply due to the longstanding association.  Your banker is a key part of your team and it is a good business practice to establish and keep positive connections.

Wednesday, October 22, 2014

WSU Internship Program Recognized for National Honor

Small Business Development Center's Research Intern Program Nominated for National Award

September 29, 2014
Written by: Alyssa Patrick, Economic Development and External Affairs, WSU

SPOKANE, Wash. – The Washington State University Small Business Development Center’s research intern program recently was named a finalist for an award from the nationwide University Economic Development Association. Award recipients will be announced this week at the UEDA Annual Summit in Santa Fe, N.M.
Tim Taylor, right, and Intern Derek Ball
“The internship is an opportunity for college students to become better prepared for the workplace while also helping Washington businesses make critical decisions,” said Tim Taylor, SBDC’s internship coordinator.
The internship was started to support a state economic revitalization grant the SBDC received in 2011 to grow new exports via a statewide export readiness program. Facing the daunting task of creating a program for businesses that had never exported before, the SBDC set up the research internship so students could help.
Interns gathered data on world markets specified by clients and answered in-depth questions specific to those markets. It was a natural move for the SBDC, which runs a variety of internship opportunities throughout the state.
In the first year, SBDC hired eight WSU interns who had strong research capabilities but lacked specific experience using proprietary databases and writing research reports for a business audience. The advisors wanted to provide their clients with the highest quality documents and their interns with rich skill development, so they developed a 2- to 3-week training and mentoring program. Students come from universities around the state to participate in the internships.
“More than just learning how to collect data, we learned how to filter out the important information,” said Craig Murchison, an intern for two years. “We were encouraged to focus on delivering actionable, relevant research in a timely manner.”
SBDC’s clients have directly benefited from that focus. Since its launch, the export readiness program has worked with 590 clients, and the interns have provided over 200 high quality, in-depth market intelligence research reports to help those Washington businesses launch or grow their exports.
Clients have reported more than $107 million in export sales and have created 373 export-related jobs since the program was started in early 2011. Clients routinely tell Taylor how beneficial they found the market intelligence reports the students did for their companies.
Rachael Barrett was an intern for 1½ years while earning her degrees in agriculture and food systems and economics from WSU.
“The internship gave me a lot of new perspectives,” she said. “Working with small businesses gave me a window into the real world, and working with other interns gave me insight into different disciplines I may work with.”
Barrett is pursuing a master’s degree in agriculture, food and environment at Tufts University, and she said the research she did for SBDC helped her realize her interest in trade and policy.
Taylor often receives emails from former interns about how the program helped them in an interview or in their jobs.
UEDA is a national association of higher education, private sector and community economic development stakeholders. The intern program was nominated for the UEDA award in the talent development category.
For more information about the Washington SBDC, go to http://wsbdc.org.