Archives for July, 2012

American College to Honor NAIFA Member Maury Stewart

July 26th, 2012, One Comment ».

A ceremonial tribute to Maurice “Maury” Stewart, CLU, ChFC, CLF, in honor of his recent induction into The American College Alumni Hall of Fame, will take place in Chicago in December. Only seven other individuals have ever been inducted into The American College Alumni Hall of Fame.

Stewart is an executive consultant for Penn Mutual. In this role, he assists the company with distribution growth and recruiting initiatives that play a vital role in the organization’s strategy.

The Alumni Hall of Fame recognizes graduates of The American College’s designation or degree programs, who have made extraordinary contributions in time, effort and energy to The College. Individuals must be long-term volunteers and active participants in The College’s community and learning environment. The selection of the Alumni Hall of Fame recipient is based on past nominations and new nominations from graduates. Being nominated previously does not exclude individuals from consideration.

Larry Barton, Ph.D., CAP, president and CEO of The American College, stated: “Maury is a recognized leader among financial services professionals. His commitment to developing the next generation of industry leaders is unsurpassed. He is a testament to life-long learning and an inspiration to others interested in pursuing ongoing professional career education through The American College.”

Before rejoining Penn Mutual in 1999, Stewart was a general agent in the company’s Minneapolis agency from 1955 to 1960. For the next 26 years, he served as GA for Penn Mutual’s Philadelphia agency. His leadership during this period helped the Philadelphia agency become the company’s leading office for 10 years in a row. Stewart maintained a consistently high level of personal production as well. He earned 12 President’s Awards and had the honor of being named president of Penn Mutual’s General Agents Association twice.

Stewart has held numerous leadership positions in GAMA, and was inducted into that organization’s International Hall of Fame. His many efforts on behalf of NAIFA earned him the association’s 2003 President’s Cup Award and a place in the Philadelphia Life Underwriters’ Hall of Fame. In addition to these achievements, in 2004, the Round Table of New York recognized Stewart by presenting him with its Lifetime Achievement Award.

 

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The ‘Wisdom’ of Borrowing for Small Business

July 25th, 2012, Comments Off.

Borrowing money is often a necessity for growing and expanding a new business, but it’s also one of the least understood parts of business management. So, what is the best way to go about it?

First, use some common sense. Only borrow money that is well within the means of the business. In other words, can you afford the repayments and the interest over the length of the loan? It may seem obvious, but it’s an important consideration.

Once you’ve decided to take a loan, maximizing on your assets and taking the largest loan possible is not the way to go. Here’s why: Let’s assume you have assets of $1 million and you borrow 70 percent ($700,000) against this amount. This heavy leverage will require a large repayment schedule.

A case in point

This is all well and good, but only if you can more or less guarantee that you have, and will continue to have, continual cash flow into your business, and are making profits that will last the length of the loan. Today, no one knows this for certain; so let’s look at the risk of this loan situation.

For the sake of this exercise, let’s say the interest rate is 6 percent, fixed over 10 years. The interest will be $42,000, plus capital repayments of $70,000 over the 10-year period of the loan. Capital repayments, plus interest in year one, is $112,000 or $9,333.00 each month. (In reality, the interest payments will decrease each year because of the annual reductions of capital, but these figures are a good starting point.)

If your planned business expansion–the reason for borrowing this money–is good and if you increase sales and profit using this loan, you should be able to afford the repayments. However, those are two big “ifs.” There is always a danger when you take a large loan and get stretched-out repayments.

The other downside of this loan scenario is that you have maxed out on your assets and collateral, and have no financial movement. To me, this could be a slow, self-inflicted punishment of an over optimistic businessman.

Smart borrowing

I would prefer to utilize a smaller amount of my assets and make the business grow within my control. This way, I would not be putting all of my eggs in one basket. If I had $1 million in assets, I would use $250,000 against a loan, still leaving me with some assets to use if needed. If things do go wrong, I can handle it with the remaining equity and the business I still have. Keep your cash flowing into your hands, not those of the lender.

When you are maxed-out, the rates offered by the banks are usually off the chart. The bank will pressure you into reducing your debt, and you will be forced to sell an asset when the market is low. You will achieve a price less than you expected.

When one of my businesses failed, and I was indebted to the bank I got the loan from, I could demonstrate that I had a way of paying it back, even though it would be for a longer period. This was no big deal for the bank, since it earned more interest. The point was to convince the bank that I could meet the commitment to it.

Having your assets free of loans, or with small loans against them, gives you better borrowing power. Being able to offer a mortgage-free building against a loan, or a building that has little debt, puts you in the driver’s seat. If you have a valuable asset, you can go to any bank and negotiate with it.

Here are some final tips:

  • Try to build up as many tangible assets as possible. Take real estate, for example. Get it paid off or with a minimal loan. You then have something to use when you need cash to expand and grow your business.
  • Don’t make the tax-deduction carrot the reason to borrow and get in debt.
  • If you use up all of the equity in your property, you lose leverage and control of your assets and become vulnerable where someone else can ring your bell.
  • Above all else, remember that borrowing money does not make a bad idea a good one!

Sure, fortune favors the brave. I believe success in business is about taking risks, but only risks that you can calculate. Make sure you assess the risk of borrowing carefully and consider the full extent of financial problems if things go wrong. When in doubt, invest in tangible assets and remember that having a business heavily mortgaged is like driving a car with the brakes on. Many smart people have ruined a good business because they are over geared.

By Victor Green

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Victor Green, author of How to Succeed in Business by Really Trying, has a long record of founding and growing businesses. Now retired, he lectures and mentors small-business owners and new entrepreneurs in conjunction with SCORE and the U.S. Small Business Administration. Above all else, he encourages his clients to “invest in common sense.” For more information, visit: www.howtosucceedinbusiness.com.

 

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