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The Overlooked Cleaner Energy Source for Home and Office: Ground Source Heat Pumps

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Everyone has heard the energy saving benefits of solar and wind power but did you know ground source heat pumps (GSHPs) can save you up to 45 percent on your energy consumption compared to conventional HVAC systems. How do we know this? Experience.  In 2004, UMB installed a vertical ground source heat pump system consisting of 12 wells at our branch location in Grandview, Mo. According to Roy Allen, who is part of the UMB maintenance team, the Grandview location saves approximately 21,000 kWh per month over similar sized banking center locations. With such great savings on energy UMB has decided to install a second system at another banking center as well. Construction for this new center should begin in February 2016.

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In addition to saving energy and money GSHPs are good for the environment since they are a cleaner source of energy using mostly ambient heat from the ground while using very little electricity.

How Ground Source Heat Pumps Work
So how do these systems provide cleaner energy and help you save on your utility bills? Air temperature can fluctuate greatly with the seasons and even daily, with daytime highs and night time lows, but surprisingly ground temperature remains relatively constant. Conventional air-source HVAC systems attempt to capture heat from frigid winter air as well as disburse heat into the baking hot summer air – which is no easy task.  However ground source heat pumps work by capturing the neutral heat absorbed at the surface of the Earth, it then heats the air in the winter and then extracts the heat from inside air in the summer. This is done through a water solution that flows through pipes (wells) buried in the ground that circulates the heated water to the home/office in the winter and then it is reversed in the summer whereby the heat is extracted from the air and transfers it via water through the pipes removing the heat from the building and transferring it to the ground.

Types of Systems
There are four basic types of GSHPs including horizontal, vertical, pond/lake which are all closed loop systems. The fourth type is the open loop system. The option you choose is dependent on the climate, soil conditions and the available land. UMB banking centers utilize the vertical option. This option is used when soil is too shallow for trenching, it also does not require a lot of space. Roy explained the system only takes up a 70 ft. x 100 ft. space and contains 12 wells at a depth 500 ft. It is located under the drive through teller lanes. He said both the current and new systems, designed by Lankford Fendler and Associates, have life time warranties on the wells. Another benefit of the system is that it is very low maintenance.

So the next time you are looking for a cleaner energy source for your new home or office you may want to consider ground source heat pumps.

Sources:
http://energy.gov/energysaver/geothermal-heat-pumps
http://energyblog.nationalgeographic.com/2013/09/17/10-myths-about-geothermal-heating-and-cooling/

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Ms. Shahane is a Vice President Healthcare Marketing/Sustainability Manager for UMB. She is responsible for managing marketing initiatives for UMB’s healthcare payments, HSAs, and benefit card products. In addition she leads the UMB Green Team and promotes UMB’s internal sustainability initiatives. She joined UMB in 2001 and has 13 years of experience in the financial services industry. She earned a MA in Marketing from Webster University. She is a volunteer for Bridging the Gap and serves on the board for Northeast Neighbor to Neighbor.



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UMB: Insights – Public Finance

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UMB Industry Insights

UMB has a long and successful history with underwriting municipal bonds for cities, counties, public hospitals and universities. One of the keys is to foster relationships with attorneys, bond counsels, underwriters and the customers. Learn more in this continuation of our UMB: Insights series.

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UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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Opportunities for Municipal Borrowers

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Interest rates are historically low. The anticipated date for the eventual rise in rates has not been formally set by the Fed, and seems to be regularly postponed.  Low interest rates present a challenging investment climate for municipalities, hospitals, school districts and colleges or universities. But it’s not all gloom and doom. There are options in which these entities may meet the challenges and seize the opportunities that come from low interest rates when they issue municipal bonds.
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The Challenges and Opportunities in the Current Marketplace
Let’s say you are a university finance officer and you need to underwrite $10 million in order to build a new library. You raise the $10 million via a new bond issue but the project calls for the cash outflow for the new building construction to happen throughout the next 24 months.  This means you have to invest the currently unspent balances in the meantime. Given the current low interest rate environment, the rate you receive on the invested balances will likely be lower than the rate you paid to raise the debt.

This situation, called negative cost of carry, occurs when an entity issues debt and then invests all or a part of the proceeds at a rate lower than the rate being paid on the debt issued.  Examples of this would include: project construction funds, escrow funds to redeem refunded bonds and debt service reserve funds where not all of the proceeds are immediately used. The interest rate on the bonds, or the borrowing rate, may be substantially higher than the rate which may be earned on proceeds, resulting in a negative cost of carry. Like our library example, if you do an underwriting for $10 million and pay an average of 3 percent interest on those bonds, in many cases, all of your proceeds aren’t put to use immediately for a building or project. Therefore, you would have $10 million in cash for a period of time. Rather than sitting on that cash and earning nothing, you’d probably invest the $10 million. However, since interest rates are so low, you wind up investing the cash you are paying 3 percent interest on into something yielding far less.

While the low return on invested proceeds can create a drag on the financing of the project as the current market provides a substantial tail wind with the low interest rate on the issued bonds. This opportunity is most apparent with refunding bonds. Unlike the corporate bond market, the municipal bond market typically allows issuers to embed the right to prepay without penalty on their long-term fixed rate bonds. Issuers can see substantial savings in interest costs by issuing new debt and using the proceeds to redeem, or prepay, the old, higher rate debt on the call date. In 2014, refunding bonds represented nearly 41 percent of all long term municipal issues, up from 33 percent in 2013. We believe this trend will continue in 2015.

Gain Better Timing and Rates through Private Placement
Private placements can be another great alternative to traditional public issues, which might result in negative cost of carry.

Let’s go back to our example of the new university library. Instead of the debt being sold in the public markets, it could be privately placed with one or a small accredited group of investors to allow for additional flexibility as it relates to the structure of the debt. Instead of the university having to deal with negative cost of carry for two years as indicated above, it could instead structure the debt so that it drew the cash in accordance with the construction timeline, potentially lessening the impact of negative cost of carry in a low interest rate environment.

A growing number of issuers have captured the low borrowing rates and then addressed the interest rate gap between the cost of issuance and rate they are able to invest at by structuring issues in the private placement market which offer more flexibility. As private placement purchasers appetite for debt has increased, the spread between publicly issued debt and privately placed debt has decreased, making it an attractive proposition. Here are other possible advantages to private placements:

  • Private placement purchasers, frequently commercial banks, are currently offering attractive borrowing rates not far removed from rates bid for publicly-offered issues.
  • Private sales avoid the time-consuming and costly work of preparing the disclosure documents required to publicly offer the bonds.
  • Issuers will not be required to observe the continuing disclosure rules of 15(c)(2)12 of the Securities Act.
  • Private placements are not registered with the SEC, so registration and disclosure requirements like the Municipalities Continuing Disclosure Cooperation Initiative are not required.
  • Credit ratings, bond insurance and printing costs can all be eliminated with private placements.

Another Advantage: The Draw Feature
In addition to the ease of issuance, only private placements can offer a valuable alternative called the draw feature. At settlement, the initial draw is used to pay cost of issuance, the remaining bond proceeds are paid to the issuer when needed rather than at settlement. Interest will not accrue on the bond until, and only to the extent that, proceeds are drawn. Construction project financings greatly benefit from the draw bond structure. For instance, a $10 million construction project that is financed at 4.00% over 20 years and takes two years to complete, would generate an estimated savings of $380,000 when financed with a draw bond.  Interest would accrue on approximately $5 million on average over the two year construction period, or $400,000 of interest, instead of $800,000 of interest accruing on the full $10 million over the same period with a public sale. The public sale would permit approximately $20,000 of interest earnings on the project pending disbursement.

Draw bonds provide similar efficiencies for refunding bonds. For example, assume an outstanding $10 million bond yielding 4 percent which may be called in one year. The delayed draw refunding bond paying 2.50 percent will reduce the size of the escrow requirements and avoid the negative investment earnings in the escrow. These efficiencies result in over $300,000 or 2 percent of the bond size in additional estimated savings compared to a publicly-issued bond in which proceeds are held in escrow and invested during the one year escrow period.

However, what if the issuer has an outstanding bond which may not be called for several months, and has already been advance refunded? The delayed draw structure can be used effectively to lock in today’s low rates on the refunding bonds and still comply with the restrictions on no more than one advance refunding. The privately placed, delayed draw bond simplifies what might be addressed in a public issuance with complicated and expensive swaps and derivatives.

Final Note
It is important to consider that while the new developments in the private placement of municipal bonds may provide the issuer with more flexible and efficient alternative financing options, current interest rates and uncertainties can be tough for institutions when managing these strategies.

Keep in mind, there are a number of sensible and intelligent ways to take advantage of any economic situation.

The information and opinions expressed in this message are solely those of the author and do not necessarily state or reflect the opinion of UMB or UMB Financial Corporation. 

disclosure

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Philip Richter is a Senior Vice President for UMB Bank. He is the Manager of the Public Finance Department in the Investment Banking Division. Phil joined UMB in 1997 and has over thirty years of experience in the municipal bond and financial services industry.



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UMB Insights: Payments Landscape

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UMB Industry Insights

Each year, there are 200 billion transactions that equal nearly 100 trillion dollars. Learn more about the challenges and opportunities facing the payment landscape today, such as:

  • Innovation
  • Behavior
  • Globalization

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Mr. Thelen is executive vice president of Treasury Management for UMB. He is responsible for treasury management sales and products, international services, capital markets and commercial healthcare banking, which include overseeing client management and service, product innovation and delivery, risk and compliance. He has more than 20 years of experience in the financial services industry.



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How to finance your dental practice: the most important questions to ask

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As a dental professional, you’ve probably spent at least eight years in school preparing for your career (12 to 14 if you are a dental surgeon). After that, your focus will be on growing your new practice by building your patient panels and providing quality dental care to the community you serve.

dental practice financing

But what’s next? There are questions you need to ask yourself as soon as you open a practice:

  • Does your practice need remodeling or construction?
  • Do you see yourself bringing on a new partner at some point?
  • And most importantly, are you adequately planning for your retirement?
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As we work with dental practitioners, we’ve noticed a trend within this profession. A lack of strategic borrowing to pay for their practice’s expenses is a leading cause that prevents dental practitioners from retiring when and how they want. Only around 8 percent of dentists are able to retire and maintain the lifestyle they had during their working days.

Dental practitioners face many challenges in today’s market. Those challenges are further motivation to properly manage your funds. An important aspect of your finances is considering the best borrowing practices for your office. Some questions to consider when thinking about a loan for your dental practice:

What are your goals for your practice?
Determine where you see your practice over time. Figure out how quickly you want to grow your practice or if you have aspirations to open multiple locations. Identify a plan and partner with industry professionals who will help you achieve your ultimate objectives. Then discuss with your banking partner what financing structure will help – not hinder – this plan.

Are you borrowing with the best interest of your practice in mind?
Ask your banking partner to explain all loan options so you can align the loan structure to the best interest of the practice.  For example, some loans have a balloon payment at the end, which could require you to pay additional interest. The money you might have to pay in additional interest could be used instead to help expand the practice or could be committed to your retirement.

What are your ramp-up and wind-down strategies?
In addition to determining the long-term growth of your practice (ramp-up), you will also need to eventually consider succession and retirement strategies (wind-down). Have you considered hiring an associate to purchase your practice as a component of your exit strategy? Have you engaged a CPA firm to complete an evaluation of your practice? These are potential issues to consider as part of a succession plan.

Every practice is unique and you might even find that long-term goals change over time. Start planning early and understand what financing options are paramount for your practice. Find a banking partner who will help you determine the best loan options for your practice and your eventual retirement and succession plans.

For more financial advice, take a look at my video on Business Banking for Dentists.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

 


Dave Bauer is a Vice President / Region Manager for UMB Business Banking. He is responsible for leading the Business Banking teams in the St. Louis and Oklahoma City regions. He joined UMB in 2011 and has eight years of experience in the financial services industry.



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UMB Insights: Being Bankable

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What does a bank look for when you’re applying for a small business loan? Here are some insights from a lender’s perspective.

  • Cash flow
  • Liquidity
  • Collateral
  • Character

To learn more about small business loans and SBA loans, check out more on the blog.

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Mr. Karaba is a Executive Vice President for UMB Business Banking. He is responsible for Leadership of the Business Banking Business Line at UMB. He joined UMB in 2013 and has 19 years of experience in the financial services industry.



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Industry Insights: Manufacturing Efficiencies

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Business is good for the manufacturing industry. How can manufacturers capitalize on this growth?

 

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Mr. Nohavec is a SVP/Business Development Officer for UMB Bank Colorado. He is responsible for Colorado. He joined UMB in 2005 and has 20 years of experience in the financial services industry.



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The ABCs of SBA Loans

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Small Business Loans explained

UMB SBA loans

A loan from the U.S. Small Business Administration (SBA) could be a very useful option for your company, no matter if you are just getting started or if you have been around for years.

SBA loans often allow business owners who may not normally qualify for conventional commercial loans to obtain financing. This includes those who:

  • have less available cash flow,
  • are more leveraged, or
  • have little to no history in operating their business.

However, it is important to know exactly how an SBA loan differs from other loans, what types of SBA loans are available and what to consider when deciding to apply.

How do SBA loans work?

The SBA actually does not make direct loans to small businesses. Rather, when you apply for an SBA loan, you are actually applying for a commercial loan from a bank or another partner lender, structured according to SBA requirements and backed by an SBA guarantee. (The SBA agrees to pay a certain percentage of the loan if the borrower defaults.)

SBA loan vs. a traditional loan:

  • SBA loans usually have a lower down payment requirement, but higher fees
  • collateral requirements: SBA loans might access equity on a person’s home for collateral, which most traditional loans would not do.
  • SBA loans have longer amortization periods and terms. This can lead to a lower payment for the borrower.

What Types of Loans Are Available?

  • 7(a) loans – the most common offered by the SBA and include a variety of loan programs such as SBA Express and CAPLines
  • 504 loans – used primarily for real estate and equipment purchasing

Considering an SBA Loan

Many aspiring business owners are hesitant to go through the SBA loan process. The application process and associated costs seem too daunting. We recommend visiting an SBA Small Business Development Center or SBA’s website to learn more about loan options available and qualifications. These centers can work with applicants not only on loan options, but also can provide resources for business planning.

If an SBA loan seems to be a fit, we recommend working with a banker that is experienced in SBA lending and can help expedite the application process, as well as evaluate all other loan options.

 

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When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Karaba is a Executive Vice President for UMB Business Banking. He is responsible for Leadership of the Business Banking Business Line at UMB. He joined UMB in 2013 and has 19 years of experience in the financial services industry.



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Do niche markets need niche banking? (The answer may surprise you.)

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UMB Industry Insights
What do manufacturing, wholesale distribution, pipeline energy, coal mining, energy services, architecture and engineering firms, law firms, telecommunications and infrastructure construction companies have in common? They are all niche markets that require specialized support from the companies servicing them. They are also industries that have entire dedicated departments within large banks and financial services companies.

UMB Bank niche markets

As a leader at an energy services company, you might see value at first in a banking partner with a whole department dedicated to your specific industry. But what keeps you going back? Is it the number of people assigned to your account or is it the relationship you have with your bank?

I hope it’s the relationship. This is true for all industries; not just banking. If you develop business partnerships based on your relationship with the people at the company, you’ll find that the business part comes naturally. You’re creating additional value for your customers beyond the products and services.

Connecting, not just banking

In our case, we serve all of the industries described above with the same group of commercial bankers. Our bankers know how to lend to all different types of companies. Not only do we know the different industries, but we know how they all fit together.

For example, we’ve found that with our various niche market commercial clients, we can provide unique networking opportunities between them. It gives our customers a chance to develop business relationships outside of the financial industry. We can connect an architecture firm with a technology company that may have otherwise not had the chance to interact. We’re able to provide referrals between our clients; not only within their state but across our eight-state footprint.

When working with your commercial bank, you should see them as more than just a “banker.” They should be a problem-solver, an advisor, and most importantly, a partner. Working outside of your traditional expectations and putting your company’s best interest ahead of everything else should be the top priority.

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Mr. Anderson is President of Commercial Banking for UMB Bank. He is responsible for commercial banking, treasury management, and business banking. He joined UMB in 1986 and has 33 years of experience in the financial services industry.



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Manufacturing and Technology Part IV: Q&A

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Our audience was filled with manufacturers with workforce issues. If you’re in the same boat, check out the answers to these common questions.

In case you missed it earlier on the blog: our expert panelists explained how they find the right employees for their organizations, reach out to high school graduates and tackle advanced manufacturing.

 

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Panelists:

Jon Kinning, COO, RK Mechanical, Inc.
Kim Madigan, CEO, AdamWorks
Bill Newland, CEO, Hercules Industries
Kevin Fink, CEO, Ice-O-Matic

Moderator:

Bart Taylor, Founder/Publisher, Company Week

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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