Maybe you recognize the title line as similar to one of the most famous sound bites from Franklin Roosevelt’s inaugural address? He defeated President Hoover without being very specific about what he would do to get America out of the Great Depression, and immediately became a cheerleading inspiration to millions of Americans.
We could sure use that today. For the past several months leading indicators point to an improving, strengthening economy. There were only 24 bank failures in 2013, down from a high of 157 in 2010. While job growth has come in trickles and spurts, the U.S. added 2 million new jobs in 2013.
Many sectors – hospitality, construction, retail, automotive, medical – reported climbing revenues in 2013 and bank profits are up across the country.
So it’s curious to read the recent Gallup poll results that found a majority of Americans were worried about money. 55 percent responded that they did not feel better about their financial situation these days, including 43 percent with annual incomes over $240,000. Naturally these numbers grew as respondent income brackets were lower.
Maybe these responses are a learned reaction to adversity. Several articles in recent years have reported on the curious rise in the fear of crime, while crime itself started falling rapidly in the early 1990s and has remained as low.
A 2011 article in Slate.com offers some potentially comparative explanations: 1) perceptions have less to do with trends than personal vicinity; 2) who you are – older people have more fear than younger people, women have more fear than men; 3) personal experience is a big factor.
Now extrapolate these two parallel conditions to the fear of lending. How many BDOs, underwriters and bank presidents are still spooked by the good loans that went bad during the financial crisis. Is it time for some fear counseling?
A recent Gallup poll discovered a significant disconnect between what business leaders need and what higher education institutions think they are producing.
Business leaders have doubts that higher education institutions in the U.S. are graduating students who meet their particular businesses’ needs. But a separate Gallup study for Inside Higher Ed finds that 96% of chief academic officers at higher education institutions say their institution is very or somewhat effective at preparing students for the world of work.
This topic reminds me of how lender’s often treat borrower resumes as a ‘check-off’ item with insufficient consideration given to how prepared the applicant really is for the task of managing the proposed business. Evaluation is sometimes mistakenly impressed with the “where” and “when” on the resume rather than the “what” and “how.”
Two former workout client files come to mind:
1. The former division president of a major food manufacturer decided to pass on a requested transfer to Europe and instead got an SBA loan to open an upscale delicatessen/gourmet grocery in Atlanta. All parties later learned that stellar performance selling packaged foods to grocery chains meant nothing when serving delicious sandwiches and imported beer.
2. A former 30-year IBM veteran who was passed over for promotion decided to cash out over $1 million of company stock and get an SBA loan to launch a franchise baked ham business in Atlanta, home to the headquarters of nationally recognized Honey-Baked Hams. He lost it all and a million dollar home to boot.
Both of these clients had good academic credentials and more than 25 years of valuable Fortune 500 company experience in responsible positions. However, transferring those skill sets to a much smaller enterprise isn’t always as easy as it appears.
Consider skills owned vs. real skills needed next time you have a prospective borrower contemplating a major life change.
Based on data presented recently by economist Dr. Rajeev Dhawan of Georgia State University’s Robinson College of Business, our state added 3,200 financial sector jobs in 2013 – 1,500 in the fourth quarter alone. Recall that Georgia had the distinction of suffering the nation’s highest number of bank failures between 2007-2013, so it’s noteworthy to see an industry recovery starting here.
That same level of activity is likely occurring in several states as lenders gear up staff to accommodate rising economic activity that will need financing. Coleman Report’s lender outlook survey (October 1, 2013) reflected 58 percent of respondents expected a 2014 expansion and 39 percent were already planning to add new staff.
Who will you hire to manage this growth? What are the best attributes to look for in these candidates? Entrepreneur.com recently offered a good article that suggested five important attributes to look for in high performing employees that I believe provides good advice:
Horsepower: Intelligence over experience. An intelligent candidate can quickly learn a job and frequently ends up doing it better than someone (less intelligent) who has been doing a similar job elsewhere. Experience is certainly valuable, but brains are the horsepower that drives the business.
Ownership and pride: Run the mile you are in. No matter their current job or career status, are they focused and engaged and take ownership in their work?
Work ethic: The valued employee is not only the one willing to work hard, they search for ways to contribute more. A preferred work history demonstrates a willingness to contribute, desire to lead, new ideas and pride in their accomplishments.
Integrity: Ask for examples of difficult decisions candidates have had to make or ethical dilemmas they’ve faced. Listen for candid responses as to how they handled these situations.
Teamwork: So much of what we do involves collaboration that we must have team players across our business. People who are ego-less and put the interests of the company above their own and are eager to share information and help their co-workers makes for a better team.
If ever there was consensus around two fundamental financial problems in America, most people will agree that there is glaring lack of reasonably-priced financial services for low income consumers and that the perennial financial challenges of U.S. Postal Service needs to be addressed once and for all. Tension starts building only when solutions are offered that invariably cross someone’s ideology line.
While a comprehensive solution to neither problem has been forthcoming, a recent idea has been floated through several articles that sounds intriguing: expand the post office’s product offering of basic financial services to consumers.
Today the post office offers money orders, a poor man’s cashier check, which is universally recognized and accepted as a cash equivalent. Until 1967, the USPS even offered postal savings accounts. Expanding services to include money transfer services, prepaid debit cards, check cashing and even small loans would provide a more modestly priced alternative for consumers from predatory payday loans, check-cashing services and high-fee money transfer services.
With 35,000 branch offices and well-oiled infrastructure, the Postal Service is easily positioned to enlarge its services for a benefit some have estimated might generate billions of dollars of sorely-needed revenues for them.
Low-income consumers would surely benefit by lowering their cost of financial services, from the average cost assessed by non-bank sources estimated at $2,412 per household. Presently more than 68 million Americans are considered ‘unbankable,’ leaving them vulnerable to financial service providers who charge exorbitant fees for basic services.
It’s an idea worth considering, and who knows, may lead to longer hours and shorter lines at neighborhood post offices.
Big companies make news while smaller companies bear plenty of the brunt of the effects of what that news is about And so when CNBC’s Krystina Gustafson headlines any real estate story with the word ‘tsunami,’ it’s a good idea to pay attention.
The subject of her late-January article was the prediction by many real estate analysts that the current spat of major retailer store closing announcements is the tip of the iceberg for what lies ahead in retailing.
The next era in retail—one that will be characterized by far fewer shops and smaller stores-is being projected based on the announced plans by many leading companies.
Sears said that it will shutter its flagship store in downtown Chicago in April, the latest of about 300 store closures in the U.S. that Sears has made since 2010.
That news follows January announcements of multiple store closings from major department stores J.C. Penney and Macy’s. Further signs of industry cuts came with Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.
What does this mean for Main Street and the lenders that serve businesses there?
These stores are making long-term bets on technology based on definitive reductions in foot traffic and clear gains through online sales. While these trends don’t affect many sectors like hospitality, automotive and housing, they directly impact ancillary businesses that thrive around malls and shopping districts: independent retailers, restaurants and some convenience.
Business lenders should examine business acquisition loan requests and other transactions that may be caught in this crossfire.
And as advocated in this column before, it’s not to early to explore strategies to benefit from the technological shift our economy is experiencing.
Read more at CNBC.
By Charles H. Green
Have you ever made a loan to some big muckity-muck in your market? An athlete, famous performer or local politician? Are you presently the lender of someone known by folks far and wide and possess knowledge of their financial details more than anyone else?
It happens frequently that these celebrity types want to cash in on their name by borrowing money from a bank, particularly in larger markets where there are simply more celebrities. And for some of them, “no” has never been part of their vocabulary. And for some lenders, getting star-struck sometimes leads to ridiculous transactions.
The news has been full of a Minnesota State Senator this week accused of defaulting on a U.S. Bank SBA-guaranteed loan for $748,000. Beyond the headline, lenders will recognize details like the ‘9-year loan term,’ probably meaning the loan was used for a business acquisition and working capital.
Not assuming everything in print is accurate or that U.S. Bank didn’t do good work, but the article states 1) the original $613,000 loan was secured with a residence valued at $128,000; 2) the loan defaulted within 18 months; and 3) the borrowers were subsequently sued for non-payment by the sellers of the business they bought.
Is SBA is honoring this guaranty?
We don’t know what we don’t know, but my personal experience knows all that glitters is not gold. Letting fame, position or reputation substitute for old-fashioned underwriting and respect for the loan policy is a mistake.
In 1983, I worked on an application for an athlete who’d just arrived on the Atlanta Hawks roster after a short tenure as #1 draft choice of another team. He was already a local star having played for the University of Georgia, so returning to Atlanta was a big deal.
Given the opportunity to provide a line of credit to him, I virtually ran to the credit bureau terminal. But it was there I heard another sound, at least the imaginary sound of what two dozen other banker would sound like running. That is, running to get this guy in my office. You see, that’s how many defaulted loans were already on his credit report.
He went on to be quite famous on the court and is still associated with team. But if you read about “Nique” in Wikipedia, his “NBA Career” section starts with the words “Cash flow problems.”
Gallup recently published a poll reflecting that baby-boomers, more than any other category, doesn’t trust bankers. That should really come as no surprise since of all the generational age groups, none other has interfaced more with banks than them. They are also the largest segment of U.S. taxpayers, many of whom are still fuming about the banking bailouts.
Nearly nine in 10 baby boomers (89%) currently have at least one checking, savings or a money market account at a bank or another financial institution. But Gallup’s 2013 retail banking study shows that just 12% of baby boomers with active bank accounts trust banks a “great deal,” with the majority placing only “some” or “very little” trust in these institutions.
On top of this, baby-boomer bank customers are among the least satisfied of any generation with the banking industry overall; nearly one in four in this generation are dissatisfied, with 9% not satisfied at all and another 14% dissatisfied. Trust has taken a hard blow in our trade, which formerly enjoyed an almost synonymous relationship with the word – remember “bank & trust.”
It’s no surprise. There have always been outlier stories about bank fraud and embezzlement, and to be sure, once the Glass Steagall Act was discarded and commercial bankers were lumped together with investment bankers and insurance salesmen, what did you expect?
But think back over the events of past six years:
Alt-A & Sub-Prime Mortgages – if they were so bad, why were we making them?
Financial Derivatives – whiz-kid financial engineers outsmarted us – and themselves.
Government Bailouts – too-big-to-imagine.
Money Laundering – foreign banks washing foreign cash in the U.S.
LIBOR manipulation – European version of arrogant money scandal.
Currency manipulation – Cheating best customers $.0001/whack.
Ok, so small business lenders don’t touch any of this stuff, right? They shouldn’t be piled into the whole mess around banker trust? Sorry but we’ve got our share of bruises as well: Remember Pat Harrington/BLX, EDF Resource Capital and Small Business Capital Corp.?
You probably didn’t cause any of this and even given the chance, probably would have avoided all of it. But you still have to do business every day with the weight of all these sins around the business you do.
So what are you doing to do today to build trust in yourself, your company and your industry?
Read more at Gallup.
Working through a long list of legal problems, JPMorgan Chase is starting out in 2014 with another steep payout to the government. The bank plans to reach as soon as this week roughly $2 billion in criminal and civil settlements with federal authorities who suspect that it ignored signs of Bernard L. Madoff’s Ponzi scheme, according to people briefed on the case.
All told, after reaching the Madoff settlements with federal prosecutors in Manhattan and regulators in Washington, the bank will have paid some $20 billion to resolve government investigations over the last 12 months.
A quick review from memory is that these fines against JPMorgan Chase have piled up over an assortment of criminal and civil infractions including mortgage fraud, securities fraud, lying to regulators, facilitating money laundering and a blind eye toward the scandal operated by a hugely successful fraud.
Pity the company shareholders who really bear the financial brunt of the crimes committed under the nose of their management team and board, which robs them of dividends, equity and market capitalization. But feel bad for yourself as well – U.S. taxpayers will be chipping in for part of the tab since an estimated 30% or so ($7 billion) will be deductible from the bank’s taxable income.
Will the size and scale of these fines change this bank’s behavior – and attitude – in the future? Are any other banks watching and will it alter their behavior? These are relevant questions to ponder in a year that the banking industry was labeled as the least trusted on the globe by Edelman’s Trust Barometer.
The former CEO of a very prominent insurance company, who cornered the market for credit default swaps, is reputed to have once said “pay the fine.” His message was that he would tolerate a lot of blatant illegal tactics in his company, because if they were discovered, the fine was lower than the profits earned.
Hopefully those days are long over – both in terms of attitude and profitability.
By Charles H. Green
Catherine Clifford offers an insightful article in Entrepreneur Magazine, but actually it’s more of a sign post. It’s only 141 words but it directs readers to an infographic that contains some powerful ideas and overarching theme that’s needed by many people in our trade, particularly by business developers: be more productive.
I can already hear the question from some who are reading this post – what’s an infographic? Why are they askingthat question this late in the digital age? Because they just haven’t gotten around to making a clear connection between that term and a kind of illustration they’ve probably seen before, which helped them learn something visually.
And it’s that procrastinating that’s probably one of the largest barriers to many people being productive at a level more reflective of their true potential.
What’s the difference between a productive BDO and an unproductive one?
BDOs at the top of their class return every phone call as soon as possible. They field emails regularly, answer silly questions, go online to get information now, explain details to loan processors and report problems to the boss promptly.
They also close most of the loans.
Unproductive BDOs check in with headhunters a lot.
In April, I’m presenting a course on Lending Leadership at ABA’s Graduate Commercial Lending School, and this infographic will definitely be used in my presentation there. Why? Because productive people tend to not only get more accomplished than others, but a lot more. Productive people become leaders because they’re productive.
Check out this information and see whether your productivity could use a few better habits.
By Charles H. Green
Entrepreneur.com reports that fast-food workers in about 100 cities have been staging wage strikes, leaving many fast food operators – particularly franchisees – caught between a rock and a hard place.
Protesters are calling for $15 an hour — a huge increase from the current federal minimum wage of $7.25, or a full-time salary of about $15,000 a year. These strikes follow on the heels of earlier protests that occurred last summer.
While mega-chains have been painted as multi-million dollar villains in these events, it’s usually individual franchisees, often struggling with slim profit margins, who are forced to make the hard decisions on employee wages
The usual chorus of objections has been underway consistently since this movement began shortly after the “Occupy Wall Street” protests. “Raising the minimum wage will only hurt those it is intending to help,” says Matthew Haller, vice president of public affairs at the International Franchise Association, an industry group.
But hasn’t that line of reasoning always been used when pressure was raised to increase minimum wages? Some of us can remember when the same arguments were used to fight raising the minimum wage to $3.35 per hour in 1981 or to $5.15 in 1997. As I recall, the national economy wasn’t thrown into recession at either date, nor millions of short order cooks tossed onto the streets.
Conventional wisdom would say that small business owners, who often operate with small budgets and plenty of fixed costs, will be most vulnerable to a mandated minimum wage increase. The presumed effect is that such a change would immediately cut into their profits and threaten their business.
But thinking more broadly around that argument, wouldn’t increasing the disposable income of millions of workers provide new business revenues for these same business owners? Too many business owners seem to buy into the fear that “higher wages will result in higher prices for customers.” So what?
It’s not like a $15 minimum would mean a $4 happy meals. An across the board wage hike would mean all businesses would have an equal cost increase, so any price adjustments would be relatively equal. If price hikes were required, they would be measured in pennies not nickels, and as such are rarely noticed by customers.
If the IFA is truly concerned about those that higher wages are “intending to help,” they might encourage their membership to absorb some of those wages through lower franchise royalties could help. Such a move would give franchisees more flexibility to meet the higher wages and focus on growing revenues – lift all boats so to speak.
If higher wages meant that the lowest paid wages had more disposable income, wouldn’t that result in a direct benefit to small business owners. Those extra wages would most likely be used for higher consumption to greater degree than increasing savings or personal debt reduction. In other words, it would raise revenues for a long list of retail businesses.
Of most socio-economic demographics categories, who eats more fast food? Lower income earners. Doubling minimum wages might be just the right stimulus to finally awaken a moribund economy from a six year winter’s nap.