Lavoz Finance Insurance

Archive for May, 2009

Contingency planning (“always have a Plan B”) is likely to help small business owners avoid complex problems. But when it comes to commercial loans and commercial mortgages, working capital strategies often fail to include adequate attention to contingency plans and what can go wrong.

One of the most entertaining and effective depictions of contingency planning is a movie called “Rare Birds”. This movie stars William Hurt and includes variations of the line, “Always have a Plan B”. For any business owner who doubts the importance of contingency plans, the movie will provide an enlightening perspective.

The usefulness of a Plan B mentality is likely to be beneficial to many aspects of running a successful business. Contingency plans appears to be under-utilized when business owners seek new working capital funds via strategies such as commercial mortgages and business cash advances.

A major reason for this oversight is that many commercial borrowers probably assume that there are not effective alternatives to the business financing they are seeking. With this thinking, business owners might believe that it would not make sense to devote time to exploring a contingency finance plan. After watching the movie mentioned above, it will become much easier to understand at times like this that it is not a waste of time for businesses to “Always have a Plan B”.

In this regard, Plan B contingency commercial financing should be viewed as insurance to protect a business owner in the event that something goes wrong with their working capital management. A few examples are provided below.

First, a surprising number of local and regional banks have recently decided to pull the plug on future business financing in their lending portfolio. When they do so, very little advance notice has been provided in most instances. If a business has commercial loans or commercial mortgages with a regional or local lender, a Plan B should be developed for the contingency that alternative business loan arrangements could be needed in the near future.

Second, many small businesses have commercial loans that contain recall provisions that permit the lender to review the loan each year (or every two to three years). Even though in this instance the commercial lender might continue a financing role for some businesses, they will in fact selectively eliminate what they consider to be marginal loans by use of the recall loan terms. If they do, the borrower will need to pay off the entire loan or refinance within a limited period of time. The loss of control by the borrower even though they might have been making timely payments is perhaps the most disturbing aspect of recall features. The best solution for avoiding this possibility is to review current business loans and explore Plan B refinancing options if recall terms are included.

Third, numerous prominent providers for business cash advances routinely make unrealistic promises about what they can do and how long it will take. Business owners should have thorough discussions with a potential business financing advisor to adequately prepare for this possibility. In this case the Plan B approach occurs prior to finance arrangements being finalized (unlike the first two examples in which financing was already in place).

Fourth, many lenders for SBA loans, business opportunity financing and commercial mortgage loans are frequently guilty of under-delivering and over-promising. Local and regional lenders seem to produce a disproportionate number of problems like this. Similar to the recommended approach for business cash advances, commercial borrowers should pursue Plan B contingency financing. The ideal timing to discuss alternative commercial financing options is before committing to a specific lender.

Finally, for the four examples noted above as well as the numerous other possibilities where contingency planning is appropriate for commercial loans and working capital loans, we do have a closing thought. “Always have a Plan B”.

Jobs in the finance industry are diverse and far reaching. Banking jobs have long been viewed as dull and uninteresting but this could not be further from the truth. With roles in financial planning, investment banking and real estate to name but a few, career paths in the finance industry are plentiful.

Commercial banking jobs are wide ranging, they offer great entry level positions and good career progression. The many large organisations in commercial banking also offer good employment security. Commercial banks provide employ more people than any other sector of the finance industry, they offer good opportunities to understand the world of business and interact with customers.

The world of corporate finance is wholly different as it usually entails working ‘in house’ using your technical knowledge to plan for a businesses future, the work is driven towards the growth of the business. Fundamentally jobs in this sector of the banking industry create value for their company, they are predominantly performance related so subsequently can be high pressure, although this pressure is elongated and based upon long term goals.

Financial planners carry out similar tasks to those in the corporate sphere; these jobs however are focussed upon helping individuals plan for their future. The work requires outstanding interpersonal skills while it can be ultimately rewarding; both financially and personally. For this role understanding of estate planning issues, investments and taxes is a prerequisite.

The field of insurance also offers a variety of finance jobs; insurance is increasingly becoming a lucrative field as more and more people become dependent upon it. Jobs in this sector include calculating risk and anticipating future problems. Job roles include underwriter, customer and sales representative, as well as asset manager. Today the insurance industry is trying to leave its negative image in the past and promote the idea that their industry is there to help people in times of need.

Investment banking has long been seen as the most lucrative sector in the financial industry. The job includes purchasing assets, trade securities and offering financial assistance. As well as large multinational investment banking firms there are smaller companies that operate on a more regional level. These jobs are important to world finance as the work larger companies undertake is often for governments.

Being a money manager is one of the most rewarding jobs in banking. It fundamentally involves the investment side of the stock market. Dealing in stocks and bonds makes up the majority of the work although freedom to work how you like is a large constituent of these jobs.

Unfortunately starting in money management is difficult, top companies only hire experienced individuals, although experience can be gained with local pension fund companies and insurance companies. Understanding portfolio theory, fixed income investments and gaining official qualifications will assist in getting this type of finance job.

Finally there is the financial field of real estate, jobs in this sector are diverse and vary from construction to mortgage brokering and leasing. With over a third of the world’s wealth tied up in real estate this is a financially rewarding sector to enter. The close ties real estate has with society in terms of infrastructure development gives these jobs a sense of social responsibility, while the work offers different challenges on a daily basis. Of all the jobs in banking this is often the most interesting field to enter.

As previously stated, jobs within the banking and financial industries vary greatly; with so many disparate fields there is much to offer prospective financiers. The skills needed in the banking industries are considerably unique to each field. However, if you feel you are shrewd with funds and in most cases great with people, working in the finance industry could be the career path for you.