How to protect your company from the trade wars whack-a-mole game

By James S. Cassel

Are the trade wars a game of whack-a-mole? It certainly seems like it. You knock one down and another unpredictably pops up. What’s next? The EU? Japan? Australia?

It’s anyone’s guess, but just because farmers were partially bailed out of a multibillion-dollar problem caused by the current trade war with China, doesn’t mean you or your business will be so lucky.

The time has come to evaluate how your company will be affected by the escalation of disputes with two of our biggest trading partners, China and possibly Mexico. As it pertains to Mexico, we have a reprieve for now, but in the game of whack-a-mole you never know what’s going to pop up next.

So, here’s what you should be doing to ride out the disputes:

First, take a hard look at your business to determine where you are exposed. Ask yourself tough questions. Will these trade wars affect your supply chain or customer base? Do your company’s products use technology developed by Chinese companies, and if so, can that technology be used against your company to steal trade secrets or surveil your customers? Do you own or control a factory in China or Mexico and what will these trade disputes mean for those operations?

If you’re selling to China or other countries, this is a good time to determine if tariffs will mean your prices will increase to the point that you are no longer competitive. Will increasing prices affect your volume and margins?
You should monitor the changes to learn what your company can endure and what it can’t.

You must drill down and evaluate what issues might arise for your business. If you depend on Chinese business partners, or even employees, it’s time to reconsider how dependent you are on them, and whether there are any viable alternatives in the short term, and maybe even for the long term. If you are primarily doing business with Mexican partners and a tariff is instated, alternatives may prove scarce.

Another issue to consider is one that so many U.S. companies already know. The price of doing business in China will many times mean giving up or compromising your intellectual property. So, in deciding if and how to cut ties with China, you must be careful to ensure you are not creating your own competitor in the process by figuring out how best to protect your intellectual property.

Mexico presents a different challenge. Its proximity to the U.S. and lower labor costs will be hard to replicate elsewhere. It might only be possible to move manufacturing back to the U.S. and suffer increased costs and capacity issues in the short term. Though some of those expenses may be partially offset by lower shipping costs.

If you do have a factory in China, now may be the time to consider moving it to Vietnam or another part of the region. You will have to calculate the viability of moving that factory, as well as the time it will take to move your operation. You may even wish to take it a step further and consider that now might be the right time to replace your workforce altogether by investing in robotics to streamline operations and reduce the number of employees.

You may also want to renegotiate existing relationships to lower costs, modify your business model by increasing your prices, or get suppliers to absorb the added costs that come with tariff increases. Do some research to find out if there are any suitable substitute suppliers. Try and find businesses that offer similar costs and capabilities that you can work with.

Some say the trade wars will go on until the next election; some predict it will last even longer. Whatever the outcome, your work begins now. Those who get caught in the crossfire later may find themselves with surprise competitors built on stolen intellectual property, sagging sales or increased costs that will simply price you out of competition.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies.

When It’s Time to Fire a Customer

By Phil Britt
June 12, 2019

Companies pour a lot of resources into customer experience, customer acquisition and customer retention efforts. Yet there are times when a particular customer is no longer worth the investment.

Customer Is too Costly
Some businesses will take on a customer who is initially unprofitable in the hopes that the relationship will change in the future. For example, some financial institutions will have very low fee accounts for college students, with the idea of building a relationship with someone who will need loans and other products and services down the line, or a business may offer a large initial discount to get a customer “in the door,” yet the relationship may never become profitable.

“Sometimes you may have customers who love you and your products — to death,” said Linda Popky, president of Leverage2Market Associates, Inc . “While your support model allows for occasional customer interactions, these customers may contact your support team on a daily basis with questions and requests. They may expect upgrades or customization that you aren’t prepared to support, given the margins you have on those product lines.”

Other times, the customer may be devoted to an older, legacy version of your product line — one that you can’t afford to continue supporting as you transition to newer offerings, according to Popky. This is why companies like Microsoft and Apple stop supporting older releases of their products. They can’t make newer features and functionality backwards compatible with older versions, and it’s too costly to continue to support multiple product streams.

“If customer behavior leads to lower profits — say a client runs an architect ragged with irrational changes during the building time of a custom house, yet the contract is based on a set percentage, and they refuse to pay excessive change order fees, yes — firing the client may be in order, along with a stronger contract next time,” said Baron Christopher Hanson, owner of RedBaron Consulting, LLC . “We’ve worked with a few clients such as high-end art galleries whereby the profit in the sale is somewhat set — 50% split between artist and gallery. However, each sale and delivery cycle can either be easy and quick (highly profitable) or lengthy and excruciatingly not as profitable.”

However, the reason to fire a customer isn’t always financial.

Too Much Tension
“The time has come to fire a client when there are clear signs of an escalating pattern of tension. At that point the client relationship becomes increasingly less beneficial, and more problematic,” said James Cassel, co-founder of the Miami-based investment banking firm Cassel Salpeter & Co . “Most business owners know when such a relationship is not a good one, or working well, but are hesitant to fire the client. And yet, more often than not, firing a client turns out to be for the best because you end up concentrating on expanding and improving relationships with existing clients, or on spending time and resources to find new clients.”

The tension can arise from several sources, Cassel said. There could be ethical issues about the way they do business, or you may have knowledge of the customer operating at the margins of the law, or even breaking it. The customer’s “risk profile” may prove problematic, which could hurt an organization’s own reputation.

No Longer a Fit
As companies grow and business environments change, they often have the need to pivot, said Popky. “IBM has reinvented itself numerous times — from offering big mainframes to PCs to software to services. Western Union transitioned from sending telegrams in the 19th century to providing money transfer services to 200 countries across the globe. Apple moved from personal computers to iPods to iPads to iPhones. Along the way, each of these companies had to shed customers that didn’t need the new product offerings or didn’t want to make the switch. There may be a short-term business hit, but the longer-term upside makes the decision to fire these customers worthwhile.”

Popky adds that sometimes there isn’t one clear, definitive reason as to why a customer is no longer a good fit for your organization. It could be there’s a change in management at the customer’s organization and they’re now looking for a different relationship with their suppliers. It could be that a change in economic conditions is driving them to a low pricing model, while you offer a more premium product that no longer fits their strategy.

The Right Way to Terminate
Some companies will quietly fire certain customers through pricing policies — like banks that raise minimums for checking accounts. They’ve determined the customers that don’t meet the minimum are no longer the type of customer that it makes the most sense to serve. Other times, the “firing” action is a little less subtle. But even though the organization is cutting ties, there is still a CX element to ending the relationship.

“When firing a client, above all, you want to be respectful and professional, and careful to avoid burning bridges,” Cassel said. “This is not a time for carelessly venting your pent-up frustration. The business landscape and marketplace are dynamic, and you never know when, or how things might change. Sometimes it is better to terminate the client by phone, or even in person, rather than by email or text, since a sensitive customer could mistakenly read their own tone into the words you’ve written.”

From GoPro to Lenovo, Trump tariffs would have raised prices on tech from Mexico

By Ed Oswald

President Donald Trump’s now-scrapped plan to impose a 5% tariff on Mexico starting Monday could have made a major impact on the cars and tech Americans love.

The impacts may seem less obvious than the tariffs the Trump administration imposed on China in early 2018. Americans depend on Chinese manufacturing for products like iPhones, computers, and TVs, as well as the components inside. But Mexico is a major producer of cars sold in the U.S., along with computers and electronic parts.

Mexico is second to only China in the number of computers it exports: GoPro will manufacture U.S.-bound devices in Guadalajara later this year. Foxconn, which manufactures a ton of brand-name tech products, has multiple factories in the country, and Universal Electronics will soon move remote control manufacturing from Mexico to China.

Tech manufacturers are likely happy that the tariffs aren’t going to happen (for now). Trump tweeted Friday that the U.S. had reached an agreement with Mexico in order to stop the tariffs, though he did not give specifics on the deal.

Trump initially said he’d increase the tariff by 5% a month, to a maximum of 25% by October 1. Such punitive measures would have had far-reaching effects and American consumers would likely foot the bill on a variety of tech products.

That said, deals like this are fickle and tariffs could still come in the future. Here’s how an escalating U.S.-Mexico trade war would impact tech:

THE BIGGEST LOSER: AUTOMAKERS

Mexico’s largest export to the U.S. is in automobiles and auto parts. At $116 billion annually, a third of its exports are U.S. bound, according to Census Bureau statistics. Cars are where American businesses and consumers could feel the most pain. Thanks to free trade, automobile manufacturing often spans North America.

Take the modern Volkswagen Passat. Manufactured in Chattanooga, Tennessee, the engine is built at the automaker’s Silao, Mexico plant, but contains parts manufactured by partners across all three North American countries, as well as China and elsewhere. It’s incredibly difficult to find a car in the U.S. that’s completely manufactured here.

It’s important to mention that the level of exposure varies manufacturer to manufacturer. Volkswagen stands to lose the most because it imports nearly half of its automobiles sold in the U.S. from Mexico, Cars.com executive editor Joe Wiesenfelder told Digital Trends. But U.S.-based automakers have plenty to worry about too: Ford, GM, and Fiat Chrysler also import significant numbers of fully-manufactured cars back into the U.S.

This may be the biggest threat of Mexican tariffs. “Though the Chinese tariffs are a full 25%, they affect only two major models, SUVs from Buick and Volvo,” Wiesenfelder explained. “If the proposed Mexico tariffs happen, they’ll start at 5% but will encompass both many assembled vehicles and countless auto parts.”

Wiesenfelder noted that all automakers with plants in the U.S. source parts from Mexican factories, so the effects could be much further reaching than some might expect.

If a deal falls through and tariffs eventually do take effect, the end result might be higher prices for new cars, but it’s hard to say if prices could rise in time for the 2020 model year. “If it turns into a standoff, however, I think it’s likely we’d see prices increase. Because so many brands are affected, it’s more likely the automakers will pass on some of the cost rather than absorb it indefinitely,” Wiesenfelder said.

Not good news for an industry with an already difficult market thanks to higher interest rates for many borrowers.

A U.S. TECH MANUFACTURER SOUNDS THE ALARM

It’s not just automakers that are concerned. Illinois-based component and accessory manufacturer OWC says it has focused on bringing its manufacturing back to North America, but the threat of new tariffs poses a real threat to its business.

OWC manufacturers around 3,000 different products, ranging from hard drives to solid state drives, PC docks, memory kits, and even smartphone cases. With annual sales of $125 million, the company has done well by pairing its offices in Austin and Brownsville, Texas with its manufacturing facilities in Matamoros. But tariffs would threaten the future of this strategy, and he says both sides of the border will be affected — and people could lose their jobs.

While CEO Larry O’Connor told DigitalTrends that OWC could weather a short term 5% percent tariff on Mexican imports without an effect on its workforce or prices to the end consumer, the threat of higher tariffs is unacceptable.

“A longer-term 25% tariff on Mexican imports could be devastating to our business, our customers, and the hundreds of team members in Mexico,” he said. O’Connor lamented the uncertainty caused by the Trump Administration’s trade strategy, arguing businesses need ” a level of consistency and predictability to operate successfully,” and that a long-term tariff battle could spell trouble for his company’s plans.

“If the proposed tariff situation regarding Mexican imports is not resolved quickly, OWC will have no choice but to reconsider our overall North American manufacturing strategy,” he warned.
But it’s not just OWC that will be affected. Much larger companies stand to lose as well. Dell and HP manufacture their computers and other peripherals in Mexico: Cisco uses a Mexico-based partner for components. Apple uses at least three component suppliers with ties to Mexico, while Lenovo has multiple production lines in the country.

‘IT’S POSSIBLE FOR THEM TO GET HIT TWICE’

Trump’s insistence on tariffs as a method of trade negotiation will have a compounding effect, say economic experts. James Cassel, co-founder and investment banker with Cassel Salpeter & Co says that some tech companies may find themselves dealing with new costs they hadn’t planned for, in multiple aspects of their business.

“With tech companies using an international supply chain, it is possible for them to get hit twice,” Cassel said. It’s common for components to be sourced from multiple regions — so your tech gadget might have a circuit board or other parts from China, but assembled in Mexico. It’s the nature of the globalized economy we live in. And it’s not like these companies can make major shifts overnight.

“I do not believe that companies, whether manufacturing tech gadgets or anything else, have had sufficient time to shift production to Mexico from China, if they did not already have production in Mexico prior to the tariffs,” he argued. In the short term, those costs are going to be eaten by these companies, and more likely passed along in the form of higher prices for a wide variety of products in the longer term as the trade war ravages on.

Like O’Connor, Cassel also took the Trump Administration to task over its seemingly haphazard trade policies, and the unpredictability it brings.

“What is really of concern is that we are being forced to play whack-a-mole where companies that produce tech components need to be ready to respond at any moment to another challenge that pops up,” Cassel said

That’s the issue that many tech manufacturers seem to not have an solution for, and has many of them scrambling to contain the damage.

Re-skilling employees for the jobs of tomorrow

By James S. Cassel

In a rapidly shifting world where business models are being reinvented, digital is king, and automation is the endgame, companies must be forward- thinking to survive — particularly given the tight labor market.

Adapting to seismic change requires having employees with the right skill sets, which may be best achieved by retraining your staff. You have an obligation to help reskill employees for the jobs of tomorrow, but the process has challenges, including pinpointing weaknesses and securing employee buy- in. To succeed, a clear road map must be developed and executed.

First, identify your company’s objectives. What are your immediate, medium, and long-term goals and needs? For example, if you own warehouses, your immediate objective may be to implement enhanced commercial two-way radios, laptops, or scanners.

Your medium-term goal might be to introduce a conveyor system that partially automates unloading trucks—technology that Walmart is currently incorporating into its stores. Long-term, you might want smart robots that handle all warehousing needs, following the example of Amazon and JD.com, China’s largest retailer.

As you identify company goals, determine what employee skill sets will be needed to transition into the future. Automated warehousing necessitates a staff to train, maintain, and repair the robots. Reskilling now will ready workers for those tasks, while having an understanding up front of what robots cannot do, will help management fill in the gaps.

Next, develop a plan, timeline, and budget detailing your business objectives and breaking them into manageable steps. Refine the plan as your reskilling strategy develops.

A sound strategy begins with taking inventory of your employees’ current skills, as well as their strengths and weaknesses. Enlist the help of supervisors to identify both skills in place and those that are lacking.

In assessing your staff, prioritize employees who have proven their mettle, loyalty and cultural fit; their continued employment and livelihood should be protected. For each employee, identify skill adjacencies to facilitate training for new positions requiring similar skills.

If you are entertaining the “buy, not build” talent acquisition strategy, remember there is always risk in external hiring. Although you may be acquiring a skill set you don’t currently have, new employees may not share your work ethic or company culture. As the saying goes, “Better the devil you know…”

Open internal lines of communication, review training options, and keep your team engaged and motivated. Show your employees the importance of being future-ready; listen to their ideas and concerns and engage the process as a unified team.

Unavoidably, as you future-ready your company, some workers won’t sync up with company goals or will refuse to learn new skills; assist in outplacing them. In the long run, it will be good for both them and the business.

For flexible employees, evaluate alternative forms of training, such as bringing in contract trainers, accessing webinars and e-learning platforms, or paying for them to pursue coursework and degrees on their own time.

Based on individual needs, consider implementing a mix of training options. Some people may have to commit to night school, while for others a few webinars may suffice. Boost employee buy-in by keeping their sights set on stronger outcomes, including higher compensation. Share the benefits that everyone will gain from more productivity with fewer people. Amazon’s 16- week certification program enables warehouse workers to become data technicians—and double their salary! Better pay is also important to retain talent and ensure that after investing in training, your employees aren’t snatched away by the competition.

Business owners are generally aware that in a transforming world, the way business was done yesterday won’t fly tomorrow. The problem is that rather than plan and prepare, many are playing ostrich and hoping challenges will somehow disappear. With autonomous technology taking over, truck drivers, for example, might become as extinct as dinosaurs. Businesses that don’t evolve will suffer the same fate.

Avoid insurmountable issues tomorrow by tackling them today. Take a hard look at your business, where you want to take it, industry and technology trends, and how your team measures up. Then, focus on implementing your plan. Reskilling may not be for the faint of heart, but neither is conquering tomorrow.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., an investment-banking firm based in Miami. jcassel@casselsalpeter.com or via LinkedIn at https://www.linkedin.com/in/jamesscassel.

How to Handle a PR Crisis: What Boeing Should Have Done

By Andrew Martins

  • After a crisis occurs, get ahead of the narrative by addressing it right away.
  • Be sure to convey empathy for any problems caused. Be sympathetic to anyone emotionally or physically hurt, but consult your legal team before admitting guilt.
  • Don’t forget to use social media as a signal boost for your business’s post-crisis message.

Financial, existential and reputational crises can happen to any business. Planning for the worst-case scenario can save a lot of headaches, regardless of how big or small your company may be.

Even though the best course of action is to avoid crisis and controversy altogether, sometimes it’s completely unavoidable. How a business handles the fallout and responds to a disaster can mean the difference between a blip on the radar or a full-blown PR nightmare. When things go sideways, it’s
imperative that you have a crisis management plan in place so your reputation and livelihood aren’t irrevocably damaged.

While there are plenty of examples of major companies going through tough times, the ongoing crisis at Boeing and its 737 Max aircraft is the most high-profile and damaging situation making headlines today. Below are three crisis management tips that small businesses can learn from Boeing’s mistakes.

Boeing’s crisis and PR missteps

Few crises have hit a business as hard in recent years as the one that’s left Boeing reeling over the last few weeks. In the months since two of Boeing’s 737 Max aircraft crashed, killing more than 300 people , the situation for the aircraft manufacturer has gone from bad to worse. Nearly the entire fleet has been grounded due to a faulty stabilization system, which is suspected to have caused the crashes. Airlines have requested compensation for the stoppage, and orders for the aircraft have ground to a halt.

With massive losses expected in the company’s foreseeable future, experts are pointing to at least one particularly damaging aspect of the crisis that Boeing spectacularly failed to navigate: its public response.

While Boeing’s woes are uniquely their own, it’s still important to remember that any business can find itself at the center of a major crisis. When problems arise and your business must respond, here are some pointers to help you navigate difficult times without damaging your company’s reputation.

1. Respond quickly with transparency

When businesses are facing a potentially damaging situation, the first thing that needs to happen is to address the situation as quickly and clearly as possible. It may be uncomfortable, but according to James Cassel, founder and chairman of Cassel Salpeter & Co. , it’s better to just get out in front of it.

“When you have a problem, you need to acknowledge it right away and take active measures to deal with it,” he said. “Too many companies fail to understand that stalling or obfuscating just increases the risk for your business.”

Being the first out of the gate with a response is just half the solution. United Capital Source CEO and Founder Jared Weitz urged companies to be more transparent to “get ahead of the story.”

“Rather than obfuscate and allow external perspectives to shape the narrative, step into the light and be transparent from the start,” Weitz said.

In the immediate aftermath of the crashes and the 737 Max’s grounding, Boeing was harshly criticized for how it handled the crisis. Slow response times and an apology that some considered insincere compounded the PR nightmare.

By the time Boeing CEO Dennis Muilenburg released an apology letter and accompanying video on April 4, nearly a month had passed since the second crash. While it wasn’t the company’s first attempt at addressing the situation, it was considered by critics as a case of “too little, too late.”

Cassel said the fact that it took Muilenburg so long to publicly apologize was a bad look since “it takes years to build up a brand, but only a few minutes to destroy it.”

2. Be empathetic, but seek legal advice before admitting guilt

Regardless of who’s impacted by a company crisis, it’s important that any apology is handled carefully. Company officials may want to avoid admitting guilt, but failing to address the issue at all can make it seem like those at the top don’t care.

In the case of Boeing’s current woes, it took the company nearly a week before they released a statement that expressed their concern for passengers’ safety. Coupled with the news that Boeing lobbied President Donald Trump to not ground the aircraft, David E. Johnson, CEO of Strategic Vision PR Group said public perception around the manufacturer soured.

“Boeing’s handling of the crisis was a classic study of what not to do. The key to successfully handling a crisis is being proactive and taking responsibility,” he said.  “Boeing failed in this and allowed others to set the narrative, …[which] conveyed the impression that Boeing was more concerned about profits than people’s safety.”

While most experts agree that addressing the event head-on and being empathetic to the victims is the best course of action, that may not always be the best legal move. Tina Willis, a Florida-based injury and accident attorney, said careful planning between a company’s public relations and legal teams can go a long way in addressing the public’s concerns while mitigating potential litigation.

“Any media presentation should be reviewed by the business’s lawyer before release. Otherwise, if a business admits fault, or even tries to explain what happened, you can bet those statements will become valuable evidence in a future accident or death lawsuit,” she said.

In the case of Boeing’s 737 Max where they recently admitted they knew of the faulty sensors prior to the crashes, Willis said potential lawsuits could come with massive penalties as families of the victims seek restitution. Knowing that, it would explain why companies often struggle with empathy versus liability.

“The bottom line is, from a liability standpoint, Boeing faced an extremely difficult dilemma,” said Willis. “However, when combining PR goals with avoiding liability goals, the best approach would have been to have the PR people develop a game plan with the company’s lawyers. If having the statement reviewed by lawyers is not possible, the best legal approach for any company would be to stay silent and speak only to their lawyers, then have their lawyers speak to the press.”

3. Have a social media strategy as part of your crisis management plan

These days, nothing delivers your message to the public as fast as social media. As such, businesses in crisis mode should include both a social and traditional media response in their disaster recovery plan. Since social media usually sets the narrative and has quickly become a major player in the information space, he said ignoring it would be a major detriment.

According to a 2018 study conducted by the Pew Research Center, approximately 1 in 5 adults said they get their news from social media. Conversely, the percentage of respondents who said they got their news from television went from 57% to 49%, while those who cited print journalism as their main source of news dropped from 20% to 16% from 2016 to 2018.

While the hardest-hitting headlines surrounding Boeing’s 737 Max were found in traditional media, the story took on a life of its own on social media. While it may be tempting to ignore the likes of Twitter and Facebook when managing your own crisis, it’s important to recognize how important those platforms are in the news world.

“With the crash of the 737 Max in Ethiopia, the company was facing a human tragedy, yet did not express empathy and sympathy in addressing the issue,” said Johnson. “[Boeing] ignored social media critics who largely set the narrative that the traditional media [picked up on].”

How to Refinance a Small Business Loan

By Rebecca Lake
April 29, 2019

If you have a small-business loan, you might be wondering if you can refinance it. Business loans, like most other loans, can often be refinanced — meaning you get a new and ideally better loan to replace the old one. Refinancing could save you money by lowering your interest rate or freeing up additional working capital in your budget if you can reduce your monthly payment.

Usually, refinancing a small-business loan is a pretty straightforward process, but equip yourself with knowledge before you begin.

How Business Loan Refinancing Works

The mechanics of refinancing a business loan aren’t that different from refinancing a mortgage or a student loan. The process involves getting a new loan to pay off your original loan. You then make payments on the new loan going forward. Ideally, the new loan has more favorable terms, such as:

— A lower annual percentage rate, or APR

— Lower monthly payments

— Less frequent payments

The terms a business owner may qualify for depend on several factors.

“When you refinance a business loan, the terms you get are typically based on what the original purpose of the debt was,” says Maggie Ference, SBA program director at Huntington National Bank in Columbus, Ohio. “In cases where the purpose of the debt is tied to an asset that might be past its useful lifespan,  such as a piece of equipment, the refinance terms can be more aggressive.”

Refinancing a business loan may have a few added steps, however, compared with refinancing personal or other types of loans. As with your initial business loan, your new business loan may require extensive documentation and specific qualification factors.

“When collateral is involved, the lender may require, among other things, a security interest in receivables as well as inventory and equipment,” says James Cassel, chairman and co-founder of Cassel Salpeter & Co. investment banking in Miami.

Types of Business Loans You Can Refinance

Business loans aren’t all the same, and you may be wondering whether the nature of your loan makes a difference for refinancing.

“There are actually very few types of business debt that can’t be refinanced,” Ference says.

With that in mind, the kinds of business loans you may be able to refinance include:

— Term loans

— Working capital loans

— Equipment loans

— Commercial real estate loans

— Microloans

You can also refinance business lines of credit and merchant cash advances.

If you have a Small Business Administration loan, however, refinancing could be a little tricky. Refinancing is only possible when borrowers have new financing needs and their SBA lender has either denied funding or refused to modify their loan. The alternative may be seeking a non-SBA loan and using that to refinance SBA or other business debts.

Pros and Cons of Refinancing Small Business Loans

Business owners may enjoy several distinct benefits when refinancing a business loan. Ference says the biggest advantage is the potential to improve business cash flow.

“The ability for a small-business owner to consolidate his or her balance sheet is extremely important, especially for small businesses that have grown rapidly and are looking to increase their organic cash flow,” she says. “You get a cash flow benefit when the refinancing of your debt allows for a lower monthly payment.”

The cash flow struggle is real for many business owners. In a February 2019 Kabbage survey, 51 percent of business owners said they sometimes sacrificed paying themselves for months at a time to smooth the flow of cash in and out of their businesses.

Freeing up room in your business budget can be helpful if you’re hoping to pay yourself regularly or to build up a cushion of savings for your business. Additionally, the extra funds can help you keep pace with rising overhead costs or cover necessary business purchases without taking on additional debt.

Refinancing at a lower interest rate can yield savings in a different way if it reduces the total cost of borrowing and allows you to pay off the loan faster.

On the con side, a few considerations:

— Possible prepayment penalties or fees when paying off the old loan early.

— The effect of applying for a new loan on your credit score.

— The current interest rate environment.

Lenders charge a prepayment penalty when a loan is paid in full before the loan term ends. This fee, which is typically a percentage of what you borrowed, allows the lender to recoup some of the interest charges it can’t collect when you repay a loan early.

Not every business lender charges a prepayment penalty; these penalties are more commonly associated with mortgages or car loans. But read the fine print on your original loan documents to determine if one applies and how much you might pay.

Also, refinancing a business loan — or any loan, for that matter — could affect your business and/or personal credit scores if the lender does a hard pull of your credit. This results in an inquiry on your credit report. A single inquiry may have a minimal effect on your credit scores, but multiple inquiries for loans in a short time span could signal to lenders that your business is desperate for financing.

As far as rates go, business loans, including SBA loans, often have interest rates that are tied to the prime rate, which is the lowest rate at which banks lend to their most creditworthy customers. It can change depending on economic factors.

If you took out a small-business loan when rates were relatively low, refinancing after rates have increased may not be as fruitful for interest savings. Of course, you might want to refinance for other reasons, such as extending your loan term and reducing your monthly payment.

Qualifying for a Business Refinance Loan

After weighing the possible advantages and disadvantages of refinancing a business loan, the next step is knowing what you need to qualify.

“Qualifying for a refinance loan really varies by lender — both with banks and nonbanks,” Ference says. “Minimum credit scores, revenue, time in business and a host of other factors will all be taken into account, and it will all be based on the individual credit expectations of the lender.”

Some of the factors that could work against you when applying for a refinance loan include:

— A poor personal credit score

— A recent bankruptcy filing

— Outstanding tax liens

— Not enough time in business

— Not meeting minimum annual revenue requirements

Still, this doesn’t mean you won’t qualify; it just means your business and personal finances will come under closer scrutiny to get approval for a refinance loan.

“A bank that might provide an unsecured loan will look at the overall creditworthiness of the business borrower and may want a personal guarantee,” Cassel says.

A personal guarantee is a legally binding agreement that gives the lender the right to collect from you personally if you default on a business debt. In other words, the lender could use business assets to recover a defaulted loan as well as personal assets such as your home or your bank accounts.

One upside to signing a personal guarantee, Cassel says, is that it could help you secure a lower interest rate on a refinance loan.

Is Refinancing Small Business Debt the Right Move?

Whether refinancing makes sense is unique to every small-business owner.

If refinancing would save you a substantial amount of money on interest without triggering a prepayment fee from the original lender, for instance, then it may be a no-brainer. On the other hand, refinancing business debts may not be as beneficial if you’re only getting a marginally lower rate or monthly payment.

When determining whether to refinance, consider:

— What you hope to accomplish by getting a new loan.

— The cost to refinance, including underwriting, origination and other fees, which may total 1% to 5% percent of the loan.

— Your business credit and financial profile.

— The rate and loan terms you’re most likely to qualify for.

— Whether the lender requires collateral or a personal guarantee for a refinance loan.

Remember to account for differences in lending practices between banks and alternative lenders, such as online lenders. Banks, for example, may offer lower rates but require a higher credit score or more revenue to qualify than an alternative lender.

“Many times, you’re not comparing apples to apples,” Cassel says. “Be careful to understand the real all-in costs as well as the fine print.”

How to Refinance a Small Business Loan

By Rebecca Lake
April 29, 2019

If you have a small-business loan, you might be wondering if you can refinance it. Business loans, like most other loans, can often be refinanced — meaning you get a new and ideally better loan to replace the old one. Refinancing could save you money by lowering your interest rate or freeing up additional working capital in your budget if you can reduce your monthly payment.

Usually, refinancing a small-business loan is a pretty straightforward process, but equip yourself with knowledge before you begin.

How Business Loan Refinancing Works

The mechanics of refinancing a business loan aren’t that different from refinancing a mortgage or a student loan. The process involves getting a new loan to pay off your original loan. You then make payments on the new loan going forward. Ideally, the new loan has more favorable terms, such as:

— A lower annual percentage rate, or APR

— Lower monthly payments

— Less frequent payments

The terms a business owner may qualify for depend on several factors.

“When you refinance a business loan, the terms you get are typically based on what the original purpose of the debt was,” says Maggie Ference, SBA program director at Huntington National Bank in Columbus, Ohio. “In cases where the purpose of the debt is tied to an asset that might be past its useful lifespan,  such as a piece of equipment, the refinance terms can be more aggressive.”

Refinancing a business loan may have a few added steps, however, compared with refinancing personal or other types of loans. As with your initial business loan, your new business loan may require extensive documentation and specific qualification factors.

“When collateral is involved, the lender may require, among other things, a security interest in receivables as well as inventory and equipment,” says James Cassel, chairman and co-founder of Cassel Salpeter & Co. investment banking in Miami.

Types of Business Loans You Can Refinance

Business loans aren’t all the same, and you may be wondering whether the nature of your loan makes a difference for refinancing.

“There are actually very few types of business debt that can’t be refinanced,” Ference says.

With that in mind, the kinds of business loans you may be able to refinance include:

— Term loans

— Working capital loans

— Equipment loans

— Commercial real estate loans

— Microloans

You can also refinance business lines of credit and merchant cash advances.

If you have a Small Business Administration loan, however, refinancing could be a little tricky. Refinancing is only possible when borrowers have new financing needs and their SBA lender has either denied funding or refused to modify their loan. The alternative may be seeking a non-SBA loan and using that to refinance SBA or other business debts.

Pros and Cons of Refinancing Small Business Loans

Business owners may enjoy several distinct benefits when refinancing a business loan. Ference says the biggest advantage is the potential to improve business cash flow.

“The ability for a small-business owner to consolidate his or her balance sheet is extremely important, especially for small businesses that have grown rapidly and are looking to increase their organic cash flow,” she says. “You get a cash flow benefit when the refinancing of your debt allows for a lower monthly payment.”

The cash flow struggle is real for many business owners. In a February 2019 Kabbage survey, 51 percent of business owners said they sometimes sacrificed paying themselves for months at a time to smooth the flow of cash in and out of their businesses.

Freeing up room in your business budget can be helpful if you’re hoping to pay yourself regularly or to build up a cushion of savings for your business. Additionally, the extra funds can help you keep pace with rising overhead costs or cover necessary business purchases without taking on additional debt.

Refinancing at a lower interest rate can yield savings in a different way if it reduces the total cost of borrowing and allows you to pay off the loan faster.

On the con side, a few considerations:

— Possible prepayment penalties or fees when paying off the old loan early.

— The effect of applying for a new loan on your credit score.

— The current interest rate environment.

Lenders charge a prepayment penalty when a loan is paid in full before the loan term ends. This fee, which is typically a percentage of what you borrowed, allows the lender to recoup some of the interest charges it can’t collect when you repay a loan early.

Not every business lender charges a prepayment penalty; these penalties are more commonly associated with mortgages or car loans. But read the fine print on your original loan documents to determine if one applies and how much you might pay.

Also, refinancing a business loan — or any loan, for that matter — could affect your business and/or personal credit scores if the lender does a hard pull of your credit. This results in an inquiry on your credit report. A single inquiry may have a minimal effect on your credit scores, but multiple inquiries for loans in a short time span could signal to lenders that your business is desperate for financing.

As far as rates go, business loans, including SBA loans, often have interest rates that are tied to the prime rate, which is the lowest rate at which banks lend to their most creditworthy customers. It can change depending on economic factors.

If you took out a small-business loan when rates were relatively low, refinancing after rates have increased may not be as fruitful for interest savings. Of course, you might want to refinance for other reasons, such as extending your loan term and reducing your monthly payment.

Qualifying for a Business Refinance Loan

After weighing the possible advantages and disadvantages of refinancing a business loan, the next step is knowing what you need to qualify.

“Qualifying for a refinance loan really varies by lender — both with banks and nonbanks,” Ference says. “Minimum credit scores, revenue, time in business and a host of other factors will all be taken into account, and it will all be based on the individual credit expectations of the lender.”

Some of the factors that could work against you when applying for a refinance loan include:

— A poor personal credit score

— A recent bankruptcy filing

— Outstanding tax liens

— Not enough time in business

— Not meeting minimum annual revenue requirements

Still, this doesn’t mean you won’t qualify; it just means your business and personal finances will come under closer scrutiny to get approval for a refinance loan.

“A bank that might provide an unsecured loan will look at the overall creditworthiness of the business borrower and may want a personal guarantee,” Cassel says.

A personal guarantee is a legally binding agreement that gives the lender the right to collect from you personally if you default on a business debt. In other words, the lender could use business assets to recover a defaulted loan as well as personal assets such as your home or your bank accounts.

One upside to signing a personal guarantee, Cassel says, is that it could help you secure a lower interest rate on a refinance loan.

Is Refinancing Small Business Debt the Right Move?

Whether refinancing makes sense is unique to every small-business owner.

If refinancing would save you a substantial amount of money on interest without triggering a prepayment fee from the original lender, for instance, then it may be a no-brainer. On the other hand, refinancing business debts may not be as beneficial if you’re only getting a marginally lower rate or monthly payment.

When determining whether to refinance, consider:

— What you hope to accomplish by getting a new loan.

— The cost to refinance, including underwriting, origination and other fees, which may total 1% to 5% percent of the loan.

— Your business credit and financial profile.

— The rate and loan terms you’re most likely to qualify for.

— Whether the lender requires collateral or a personal guarantee for a refinance loan.

Remember to account for differences in lending practices between banks and alternative lenders, such as online lenders. Banks, for example, may offer lower rates but require a higher credit score or more revenue to qualify than an alternative lender.

“Many times, you’re not comparing apples to apples,” Cassel says. “Be careful to understand the real all-in costs as well as the fine print.”

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How to find and retain talent in a tight labor market? Flex your creative muscles

By James Cassel

In the past, when my colleagues lamented over their hiring difficulties, I asserted that there was plenty of talent available in the area — and regardless, South Florida would always be able to attract qualified employees. Having now experienced first-hand hiring challenges as our own firm grows, I believe I was wrong.

With unemployment around 4%, the talent pool appears to be running dry. The just-released 2018 Greater Miami Chamber of Commerce Executive Survey indicates that the top concern among area executives is finding and retaining qualified employees. Nationally, according to Aptitude Research Partners, three in four hiring decision-makers say that, “ finding quality candidates is their #1 challenge.” To grow, despite this difficulty, companies must aggressively recruit.

First, announce on a range of channels that you’re hiring. Post available positions on all top job sites, including Indeed, Monster, and LinkedIn. Consider supporting these efforts with digital advertising, a cost-efficient means of targeting the segment you’re after.

Other valuable channels for accessing talent include headhunters and your network. Speak to clients and vendors—particularly any that are downsizing—as well as employees, friends, and family. Contact organizations that could help you tap into the local workforce, like colleges, chambers of commerce, and business councils.

Having broadly disseminated your talent needs, contemplate candidates that aren’t currently in the workforce or don’t fit a traditional mold. Parents raising kids and other homebound caregivers ready to rejoin the workforce are often discounted due to lack of recent experience, which training can readily overcome. Offer workshops and mentoring to re-sharpen skills.

Also important are underemployed, semi-retired, and retired individuals who bring a wealth of knowledge and experience. On the other end of the age spectrum, internship programs can yield employment offers upon graduation, giving you a leg-up on the competition.

It’s also wise not to discount applicants lacking some credentials. Motivation and a good work ethic often surpass a degree, and many of the best employees don’t always look perfect on paper.

Capturing and retaining talent also requires offering compelling pay, benefits, equity or profit sharing, and perks. 2018 saw wage increases across companies and industries, including Walmart, American Airlines, and Comcast. Prioritize competitive salaries and reward existing employees with annual raises, which shouldn’t fall below the 3.1% national average. Equally important is vacation time, which can be a reward for tenure, increasing annually. Keep an eye on how your competitors are compensating, it’s very costly to lose good people to others who are willing to pay more.

Offer desirable perks, such as childcare or a gym membership, and implement a plan for out-of-the-box benefits, which may include assisting with the costs of certain medicines or treatments not typically covered by insurance plans. Helping to pay off student loans has also become a hot new benefit. Create a culture that is inclusive, supportive, enjoyable, and prioritizes giving back to the community and your employees won’t want to go anywhere else.

A general dearth in people for hire needn’t block your upward momentum, but it requires a paradigm shift in thinking. The challenge in finding and retaining good talent is to scrap preconceptions, think strategically, flex your creative muscles, and keep seeking. In the words of Zig Ziglar, “There is no elevator to success. You have to take the stairs.”

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., an investment-banking firm based in Miami. jcassel@casselsalpeter.com.
At LinkedIn: https://www.linkedin.com/in/jamesscassel

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