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Financial Word of the Week (Small Business Month): Collateral

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FWOTW

Collateral is a company’s assets that are pledged to ensure payment of a financial obligation. Collateral can include business or personal assets such as equity in your home. Business collateral typically includes equipment, inventory, vehicles and accounts receivable. As we explained in our post about the “Five Cs of Credit” (one of which is collateral), you may be required to sign a guarantee with the promise to repay the loan if you cannot repay it with the profits from your business.

Sometimes a Small Business Administration (SBA) loan could be used if there is a collateral short fall within the organization.  An SBA loan has other requirements as well.

A company must understand that the collateral they put up for a loan could be seized if a company defaults on a loan. Also remember that most lending institutions require your collateral value to be more than the loan amount.

 

 

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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.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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Manufacturing and Technology: A New Workforce Dynamic

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How do you find the right employees for your organization? A panelist of leaders in the manufacturing industry shared their struggles and successes with the ever-changing workforce.

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

Next month, we’ll bring you these panelists’ insights on education and technology advancements.

 

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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.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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Business Banking for Dentists

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Should new dentists purchase their first home or buy their practice? Watch to find out our recommendation and some pitfalls to avoid when financing a dental practice.

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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: Commercial Lending in St. Louis

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The current lending environment in St. Louis is cautiously optimistic. Find out more about what industries are seeing the most growth this year.

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Mr. Peter Blumeyer is President of the St. Louis marketplace for UMB. He is responsible for overall commercial growth in the St. Louis metropolitan area and works closely with other lines of business leaders to drive overall growth in the region. He joined UMB in 2006 and has 10 plus years experience in the financial services industry. He currently resides in Glendale, MO with his wife and two small children.



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UMB Insights: Commercial Lending

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Own a business? Earlier, we gave you an inside scoop from a lender’s perspective. Whether you’re just starting a company or renewing a long-time loan, here are a few more tips on what lenders need from you. We’ll also give you a look inside the industry and what types of loans we’re seeing this year.

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Industry Insights: Manufacturing…3 ways to become more efficient

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For manufacturers, finding more ways to increase cost-savings continues to be a top priority. Looking at the rise in lean standards shows this trend. And while many are making great strides in maximizing their physical operations, administrative areas should be considered as well. Specifically, consider these time and money savers in your company’s financial processes:

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1) Plan for large investments – Evaluate and properly plan for equipment guidance line needs. As technology continues to evolve, many manufacturers are purchasing more equipment to support their operations. As businesses expand their work, make repairs or replace units, they may find themselves making multiple purchases throughout the year. Rather than go through the process of taking out a separate loan for each investment, manufacturers should map out their anticipated needs for the year and take out a line that will cover all potential investments. Not only will this save time, but it also provides flexibility for manufacturers to buy new or used equipment and to proactively plan for capital expenditures they may want to make during the year.

2) Streamline purchasing processesPurchasing cards are another item to consider from a processing standpoint. Not only does the right program provide valuable rewards, but it also cuts down on check writing, and provides increased flexibility in cash flow. Additionally, it creates a more streamlined tracking system for accounting departments. By allowing job numbers to be attached to specific expenses, companies can easily allocate costs to the appropriate projects, which results in more effective planning and budgeting.

3) Use payment technology – Remote deposit is a great service to incorporate into business operations as well. For manufacturers that have not yet made the jump, this is an easy, and extremely valuable, component to incorporate into the payments process. In addition to being very easy to use, it provides a safe and secure way to process incoming funds and also saves valuable time by eliminating the need for deposit trips to the bank.

As the saying goes, time is money, so implementing ways to become more efficient is a great way to positively affect the bottom line.

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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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How to secure a commercial loan: a lender’s inside scoop

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From bakers and brew masters to dentists and doctors, all business owners have one thing in common – they all need money. That fact is true regardless of the stage: starting, expanding or continuing their operations. Securing financing for a business can be one of the most overwhelming tasks an entrepreneur will ever face.

Lenders ask the same questions and look at certain criteria when evaluating loan requests no matter the amount of money a business owner needs.

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What’s the Plan?

Lenders want to know how much money will be personally invested in the business, how much money the creditor is being asked to fund and how the money will be used. For a startup company, you will need to present more than the basics. You’ll need to show a business plan, giving the opportunity to answer the aforementioned questions as well as the following:

  • Who will own and operate the business?
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  • What experience and/or qualifications do you have to operate the business?
  • What will the business sell/provide?
  • Who is your target market?
  • What is your marketing plan?

For a company that has already been in business two or more years, lenders will require current balance sheets, profit and loss statements, and interim balance sheets. It’s a good idea to bring personal tax returns and financial statements, as well.

Money Makes the Business World Go Round

Once the lender has reviewed your business plan and expertise, they will move on to the money. For a startup, the first question a lender will ask is how much money is needed to start the business and make it profitable. Think about working capital such as inventory, real estate, equipment and furniture.

The next question is how much money will you personally contribute to the business? Actual cash investment by the business owner is necessary. An existing business will need to present its current balance sheet to demonstrate how much has already been invested and how the money was spent. All of this information will be reviewed to determine how much actual cash investment remains after paying out expenses and providing a living for the business owner.

These questions will be evaluated by the lender to determine if the business will operate soundly, that the debt burden does not place unreasonable demands on the profits of the business to repay the debt, and that you have enough capital at risk to keep you committed to the success of the business.

The Payment Terms

The biggest challenge business owners face when seeking a loan is showing the lender how and when they will pay the money back.  This is the chance to prove to the lender that your earnings will be enough to repay the loan.

To accomplish this goal, existing business owners should bring historical operating statements to showcase prior sales, expenses and profits. If you’re new to this, provide projections of sales, expenses and profits for the next two to three years, and an annual budget of cash expected from sales. Industry and market research data can serve to back up your projections.

Borrowing money is all about convincing the lender that you have the capital needed to succeed, the ability to repay the loan, the character and skill to implement the plan and the collateral to serve as backup. When entrepreneurs clearly understand the process and questions a lender will ask, they are adequately prepared to go out and secure a loan that will help their business succeed.

For more tips to prep you before your meeting with a lender, check out this earlier blog post: The 5 C’s of Credit.


Michael Rosales is senior vice president and small business banking manager at UMB Financial Corporation. Mr. Rosales joined UMB in 2005 as part of the founding crew of the Small Business Banking Department. He manages a group of associates who process requests for small business loans. Mr. Rosales can be reached at Michael.Rosales@umb.com.



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Community banks are the lifeblood of their communities

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There has been much discussion and debate recently about the role of community banking in America.  In fact, I read with interest a recent article in the Wall Street Journal, “Tally of U.S. Banks Sinks to Record Low,” which compelled me to write this blog post reaffirming our support of these banks.

The article points out that the number of banks has dramatically decreased to 6,891 as of September 30, 2013. The reasons for this decline are varied.

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On one side there are changing demographics, and the challenges smaller, more rural communities face while simultaneously trying to prosper. Not to mention the impact of rapidly changing technology and accelerating costs.

On the other side, persistently low interest rates and a difficult regulatory environment have made the business of banking more challenging. Clearly interest rates will return to a more “normal” level at some point, and our hope is that regulators find proper balance as we move forward.

So, you may be wondering, what does this all mean for the banking industry? Opinions have varied greatly as to whether a reduction in the number of banks is a positive or negative trend. There also have been various viewpoints on the impact it could have for community banks, given the large number represented in the decline. This in particular is the point I would like to address.

UMB has been offering Correspondent Banking services since 1928, and we currently work with more than 1,000 community banks. Because of our relationships and experience in this area, we know firsthand the value they provide and the part they play in not only our industry, but in their communities as well.

We understand the critical banking and financial needs community banks address within their communities, and we are firm in our convictions that the community banking model works. Our company has always been an advocate for community banks that serve their local communities, businesses and citizens, often providing services larger banks are frequently unwilling to extend.

We know that banks are the lifeblood of their communities. As such, having community banks solidly positioned with the services required to fulfill their mission of growing and supporting their communities is crucial to the long-term economic health and vitality of their communities. It is also essential for the future of banking—and we will continue to be here to support community banks in their endeavors.


Mr. deSilva is president and chief operating officer of UMB Financial Corporation. He is also vice chairman of UMB Bank, n.a. Mr. deSilva joined UMB in January 2004. He is primarily responsible for UMB's fee-producing business units and product lines, including Scout Investments; UMB Fund Services, UMB Healthcare Services Payment Solutions, Prairie Capital Management. Additionally, he is responsible for all corporate operations, technology, properties, security and marketing.



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Balancing Act: The changing landscape of commercial banking

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Technology has changed the way people do business. It’s also changed the way they do business banking. You can transfer money between two business accounts in minutes with online banking or complete and submit your entire expense report on the computer. Technology gives you the convenience of having greater control over your company’s finances. But that shouldn’t change the business partnership you have with your company’s bank.

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Like any relationship, creating and maintaining an effective partnership requires regular communication between you and your bank partner.  A strong relationship with your company’s financial institution not only enhances your customer experience, but also helps the bank balance quality service with a high level of information security.

Customer Experience

Your banker should know your company beyond what can be learned from a monthly commercial credit card statement. Your bank should act as an extension of your business and not just a place for you to keep your corporate accounts. Understanding the business cycles and unique financial needs of your engineering firm or your agriculture business gives your bank the insight to be a partner working with you on developing ideas to help your business succeed. This experience begins with a simple but powerful idea: know your customer.

For example, a bank that uses “know your customer” requirements for you to access your account can take this information and use it as a chance to get to know you and your employees better. At UMB, we require you to provide information that will uniquely identify you as the customer you say you are when you call us. These precautions are also good security measures to reduce potential fraud on your accounts.

Information Security

Having a strong relationship with your bank is important to your information security. Most banks will monitor spending habits to check for fraudulent activity on your commercial cards. For example, if a commercial card for a construction company starts posting a series of expensive charges at a department store within several hours, UMB might flag that account for suspicious activity or even put a hold on the card to stop any further transactions. Some might see this as too constrictive and even intrusive, but if you have a good working relationship with your financial institution you’re more likely to view this type of monitoring as a partner looking out for your company’s financial well-being.

So what can you do as a customer to keep the two-way communication open? Keeping your profile with your bank up-to-date makes it easier to verify who you are when you need to contact them. This also helps your bank ensure an accurate and safe customer experience.

Balancing self-service, customer service and information security is a challenge. A good bank should maintain the fine line between giving you the freedom to run your business and manage your finances, while remaining a loyal business partner who will always looks out for your best interests and the financial safety of your company.


Mr. Wegner is vice president and commercial card product manager at UMB. In this role, he is responsible for product development and program design for new and existing programs. He joined UMB in 2011. He earned an MBA in Management from Rockhurst University in Kansas City MO. He is a member of the NAPCP Public Sector Advisory Board.



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The 100-Year Old Entrepreneur

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A century is a significant amount of time for anything. However, it’s an especially meaningful milestone for UMB. When you think about some of the challenges over the past 100 years: the Great Depression, world wars and most recently the Great Recession, it’s a unique feat to not only survive 100 years, but to thrive. We aren’t the only century old company, there are many more like us. So, what’s the secret to success?

It’s the story of the 100-year-old entrepreneur.

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What do I mean by that? It’s the idea that regardless of how long a business operates, the leaders must make a conscious effort to always incorporate the entrepreneur mindset in their day-to-day work. It’s the visions, strategies and practices that continue to reinvent, reset and remind an organization of who they are, what they offer, and how/why they do what they do.

There are several common values entrepreneurs bring to the table – below are a few I believe are most important.

Evolution is not optional

It sounds simple, but this can be hard for companies. As time, customers, technology and pretty much everything else change, so must elements of a business. Having the foresight and commitment to take calculated risks based on these evolving needs is critical. Entrepreneurs start a business venture because they see an opportunity for a new way to do something – a mindset existing businesses should also adopt. Whether it’s adapting delivery models, expanding or eliminating offerings, or entering new markets, continuing to evolve as a business will help you stay relevant. Fear of failure cannot be an inhibitor. We all know, the only constant is change…and that’s actually a good thing for business.

Surround yourself with the best team

We all say it, but not everyone does it. Successful entrepreneurs understand that associates are as important as their business model. They are the heartbeat of the organization. A business can have the best offering in the marketplace, but it won’t mean anything if the right people aren’t part of the team. Having people that continually evaluate, question, advise and champion the way products and services are formed and executed will determine your success. Associates are also the face of your company, so having people who are passionate about your organization and what you do is a must. We all know in a competitive market, customer service and relationships can be the differentiator. Anyone can win on price. The real question is whether you can win, and more importantly keep the business, based on service.

Ethics and Integrity

It’s the Golden Rule. It’s your moral compass. It’s your reputation and the value behind your brand. How you conduct business defines your worth as a trusted advisor, a community member and an employer.  I’ve often said, “We do what’s right, not what’s popular.” And it’s been one of the biggest contributors to our success. Having these types of guiding philosophies that are passed down generation after generation and consciously employed in the daily culture and actions of your organization will result in outstanding client relationships, quality community involvement, and loyal, engaged associates—all of which will support the longevity of your business and overall success.


Mr. Kemper is the chairman and chief executive officer of UMB Financial Corporation and UMB Bank, n.a. He joined UMB in 1997. Mr. Kemper is active in both civic and philanthropic endeavors. One of the causes he is most passionate about is the arts. He currently serves as a trustee and executive committee member for the Denver Art Museum and is a past board member for The Arts Council of Metropolitan Kansas City.



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