Archive for the ‘Banking’ Category

Deadlines Loom for Commercial Property Tax Assessments

Wednesday, June 2nd, 2010
File Your Appeal on Time

File Your Appeal on Time

Many communities close their fiscal years in June or July, which means that business owners need to keep an eye on pending deadlines to appeal commercial property tax assessments. The states, desperate for revenues to meet their own budget shortfalls, did not take into consideration the full impact of the recession on property valuations. The result is that many businesses are burdened with inflated tax assessments. Business owners simply cannot afford to overpay their tax obligations, particularly in this difficult economy. Accounting firm Grant Thornton LLP recommends that commercial property owners who suspect that their assessment may be overvalued should retain the services of a certified, independent appraiser, experienced in commercial valuations. According to Terry Conley, a partner at Grant Thornton, “an independent appraisal is the biggest influencer for an appeal. A business owner can get a truncated appraisal that that allows them to compare their business to similar properties in the area, which is usually enough for an appeal. When more proof of overvaluation is necessary, we conduct an in-depth assessment that considers everything from infrastructure to landscaping to entryways.” Business owners also need to establish where to file their property tax appeals, as commercial properties are often considered by separate agencies than those that treat residential properties. Appeals can be challenging, but those who undertake them have a high rate of success. Of course, if you own your own home, you should consider your residential property valuation as well. Every dollar of tax relief is a dollar you should fight to obtain.

U.S. Chamber of Commerce Addresses Taxation

Friday, May 14th, 2010
Small Business is Big Business

Small Business is Big Business

The U.S. Chamber of Commerce issued a statement on access to capital for small businesses directed to the Congressional Committee on Small Business, the Subcommittee on Finance and Tax. The statement sets forth two policy recommendations that are particularly important at this time. First, Congress passed legislation calling for a 3% tax withholding on all government payments, which affects government contractors. While the requirement will not go into effect until January 1, 2012, businesses and federal, state and local governments are spending funds to prepare for its implementation, which expenses the Chamber believes to be unnecessary for a requirement that should be repealed. The Defense Department estimates the cost of compliance with this requirement to be $17 billion over the first five years, exceeding any forecasts of revenue gains. For small businesses that contract with the federal, state and local governments, this onerous requirement should be repealed. Second, the Chamber argues against raising tax rates, reminding Congress that many small businesses are organized as Subchapter S corporations or sole proprietorships, such that increases in personal tax rates increase their cost of capital. This would reduce capital available to reinvest in small business at a time when banks have already choked back on lending to this sector. The Chamber of Commerce represents more than three million businesses in the U.S., of which 96% have fewer than 100 employees. Let’s hope that Congress acts on the Chamber’s recommendations.

Banking on Tennessee

Wednesday, May 12th, 2010
Banking on Rebirth

Banking on Rebirth

On page 140 of Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition paperback, 2009), I informed readers that when the President declares a federal disaster, early withdrawal penalties on time deposits are waived as residents and businesses will need additional cash resources to recover. Many banks are unaware of this requirement, so I recommended that if your bank is not, get the cash as soon as you need it and seek reimbursement of any early withdrawal penalties, time permitting, when you are further along in your recovery efforts. I also recommended that you immediately request forbearance on any and all loans and credit facilities. In disaster recovery mode, you will need every inch of breathing room you can get.

So I was delighted to read that Bank of America is putting into effect a disaster relief program in the 42 Tennessee counties designated federal disaster areas by the Federal Emergency Management Agency. The Bank’s disaster relief program provides that small businesses in the affected counties may qualify to avoid early withdrawal penalties on bank certificates of deposit. They may also receive emergency credit line increases on their bank credit cards and may modify or extend payments on loans, credit cards or lines of credit. This is exactly the way to proactively help small business customers in the aftermath of a disaster.

And may I make an additional suggestion to the Bank of America? In the aftermath of a disaster, many small businesses with otherwise pristine credit histories will develop blemishes on their credit reports though no fault of their own. The business will inevitably have some customers that were unprepared for the disaster and will be delayed or default entirely on their obligations, causing some strain on the business. This is the time for banks to show some flexibility and take these factors into consideration for loan applicants.

At a time when bashing banks has become politically fashionable, we should remember how they support our communities. In banking on Tennessee, Bank of America is being true to its roots. A.P. Giannini, the founder of Bank of Italy, the institution that is the predecessor to the Bank of America, saw the opportunity represented by the devastating San Francisco earthquake of 1906. As other banks succumbed to panic, his made emergency loans to customers, mostly immigrant owned businesses, earning the bank their loyalty. This cemented the Bank’s position as a leading financier to the film and wine industries in northern California.

Bank of America Includes Small Business Customers in CARD Protections

Friday, April 30th, 2010

In an earlier blog posting, I criticized CARD (Credit Card Accountability, Responsibility and Disclosure Act) legislation for excluding small businesses from the protections it affords to individual consumers. Those protections include banning the practice of retroactively raising rates on old balances. Now one major bank has decided to do what Congress did not. Bank of America has announced that it will extend the CARD Act protections to its two million small business customers. Specifically, BofA will provide at least 45 days’ advance notice of future interest rate changes, a minimum 25-day grace period between the end of the billing cycle and the payment due date and a one-page summary of the terms and conditions of the credit account, to bring transparency to rates, payment information and fees. In addition, BofA will apply payments made on small business card accounts to the portion of their balance with the highest interest rate. I am heartened to read this news and frankly wonder what took a major bank so long to take this initiative. Surreptitiously sneaking in fee hikes and reassessing past interest rates was no way to build market share and goodwill among customers. Now let’s see if the other banks follow suit.

FDIC Extends Business Deposit Insurance

Wednesday, April 14th, 2010
FDIC Support Continues

FDIC Support Continues

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) yesterday approved an interim rule to extend the Transaction Account Guarantee (TAG) program to December 31, 2010 with the discretion to further extend the program to year-end 2011, should economic conditions warrant such action. The program, which was set to expire on June 30, 2010, provides customers of participating depositary institutions full coverage on transaction accounts. The program mitigates the risks that banks would risk unnecessary liquidity failures should businesses diversify their banking deposits among multiple institutions to fall below the deposit insurance cap. Often, as payroll dates or other key payables approach, business banking balances temporarily exceed the account maximum for FDIC-provided deposit insurance. As a consequence of the financial crisis of 2008, small businesses had to consider the possibility of a bank failure occurring at the time of a peak deposit, prompting the FDIC to raise its limits for such business transaction accounts.  The extension of this program is expected to continue a stable funding source for banks to secure low-cost, large, locally-sourced deposits. It will also reassure small businesses that they can maintain their existing banking relationships beyond the June 30 expiry date without fear of the loss of FDIC backing.


Small Business Banking Less Secure Online Than Personal Banking

Tuesday, January 5th, 2010
Cyber-Defenses

Cyber-Defenses

The American Bankers Association and the Federal Bureau of Investigation have responded to increasing cyber-robberies targeting small businesses. They issued an advisory to use a separate computer with no other functionality except for online banking.  The FBI is investigating suspicious patterns of “banking Trojans” or malware on computers that enable access to online bank accounts. These Trojans are becoming increasingly sophisticated in their manipulation of technologies for clearinghouse and wire transfers.  The FBI has investigated more than 200 incidents in which cyber-robbers effected fraudulent transfers of banking funds involving more than $100 million for which the victims were mostly small businesses.  Sadly, business banking accounts do not benefit from the same protections afforded to individual consumer accounts, which require banks to fully reimburse account holders who immediately report fraudulent account activity. In the case of banking fraud perpetrated on a business account, the bank can deny its liability for the failure of the business customer to properly protect its computer.  We should all request clarification from our banks on their fraud protection policies.  Meanwhile, protect your business by conducting banking activity from a stand-alone computer that is never used for e-mail or web browsing, making it less vulnerable to infection by malware.

Sleepless in Chicago

Saturday, January 2nd, 2010
Booth School of Business University of Chicago

Booth School of Business University of Chicago

Who goes to Chicago in the fall and winter months? Well, I do. I had the privilege to speak at the annual small business banking conference sponsored by Source Media, publisher of American Banker. I appreciate the opportunity to hear the banker’s perspectives on declining commercial and small business loan volumes. One theme that emerged in the discussions was the opportunity afforded by the recession to improve underwriting discipline while rebuilding banks’ capital bases.  While that is hardly the news we want to hear, to be fair to the bankers, regulators have put them in an impossible position. Privately, bank supervisors hector management about extending credit while publicly, politicians pillory them for their failure to do so. It is a no win situation for the banks. Economics, not politics, should drive small business lending decisions. I took advantage of my stay to meet with Linda L. Darragh, Clinical Associate Professor of Entrepreneurship at University of Chicago’s Booth School of Business. A passionate advocate for entrepreneurship, she initiated a venture fund and served on the Mayor of Chicago’s high technology task force. I took full advantage of her insight and suggestions as to how to improve my own business operations. So that encouragement compensated for the gloomy credit outlook! Actually, my visit to Chicago was a joy all round and I look forward to returning.

The Small Business Massacre

Wednesday, December 9th, 2009
Not Good News

Not Good News

David Goldman appeared on Larry Kudlow’s CNBC program to discuss the “massacre of small business”. Policymakers have belabored the point that small businesses have led job creation in all post-war economic recoveries. That is not the case now as job losses at small businesses exceed those of large ones. Goldman pointed out that the household survey, based on telephone interviews with a large sample of randomly chosen households, shows that 558,000 Americans lost their jobs in October, but large businesses reported a decline of only 190,000 jobs. So small businesses are disproportionately affected by the economic downturn, doubtless due to the contraction in commercial credit. Business lending is down 13% year on year and according to the recent report of the Federal Reserve Bank, most banks continue to “tighten lending standards”.  Small businesses are choked of credit as all lines, including home equity and credit cards, are tightened. Without access to capital, small businesses fail. Indeed, Moody’s reported that the global speculative default rate is at 12%, an all-time high since the Depression. The capital access disaster is exceeds all natural disasters in severity, owing to bad economic policy.

The Best Account of the Financial Crisis

Sunday, December 6th, 2009
International Headlines

International Headlines

I urge you to read “The Great Trade Collapse”, a publication of VOX EU. It is the best account of the financial crisis and the concomitant trade collapse. This is critical to small businesses, as we form the global supply chain. I also recomment that you check out the crisis_timeline for the U.S. and the irctimelinepublic for the rest of the world. If you click on individual events, the links open up to a direct account of what transpired from the host country’s perspective. What is absolutely astonishing in reading this dispassionate account is the careful recitation of events which lead you to the conclusion that our policymakers were blundering their way through this crisis, which actions had devastating consequences not only for the domestic small business sector, but for global trade and, in particular, the most vulnerable of the developing world, whose aspirations were dealt a setback by events beyond their control in Washington and in Wall Street.

Small Business Financing Forum

Tuesday, December 1st, 2009
Small Business Financing Forum

Small Business Financing Forum

U.S. Treasury Secretary Timothy Geithner, Federal Deposit Insurance Corp. Chair Sheila Bair and U.S. Small Business Administration head Karen Mills co-chaired the Small Business Financing Forum in which the usual sound bites were offered about the importance of small business to the U.S. economy: the “engines of job growth”, support the tax base, lead the country out of recession, etc. etc.  Geithner stated that small businesses are more vulnerable to banking crises, as 90% of them obtain their credit from banks as compared with 30% of large corporations. As small businesses have fewer capital resources to work through a credit drought, they paid dearly for the errors of the banking sector and the government. Geithner outlined the Obama Administration’s six-step plan for help small businesses access credit:

  1. Provide direct support through the Recovery Act to promote government loans guaranteed through the SBA. I have already blogged about why this approach won’t work.
  2. Support small business lenders by providing low-cost capital to community development financing institutions.
  3. Repair securitization markets by promoting the Term Asset-Backed Securities Loan Facility program to lower the interest costs on asset-backed loans.
  4. Provide guidance to lenders. This appears a polite euphemism for the process by which regulators browbeat the banks they supervise. It hasn’t worked yet.
  5. Support government programs by lending agencies like the U.S. Export-Import Bank. Unfortunately, such programs are welfare for large corporations that can secure credit and insurance through the private sector.
  6. Exert pressure on banks to use federal assistance programs. The Administration apparently believes that the top 19 banks that received TARP (Troubled Asset Relief Program) aid should participate in SBA lending programs. Unfortunately, SBA lending programs don’t meet the credit needs of most small businesses. The increased guarantees on the loans simply mean that the taxpayers will bear more losses for inexperienced banks to move up the small business credit learning curve. This is a terrible idea.

To watch the video of the U.S. Treasury Secretary’s presentation, click here.