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Maine.gov > PFR Home > Bureau of Financial Institutions > Consumer Services > Business Person's Guide to Banking in Maine

A Business Person's Guide to Banking in Maine

Maine Bureau of Financial Institutions Consumer Outreach Program

" Providing information and assistance to Maine consumers and businesses about financial services and practices in a changing banking environment."

 

The Agency would like to acknowledge the contributions made by the former Consumer Outreach Specialist, David Leach in drafting this booklet.

 

TABLE OF CONTENTS

INTRODUCTION

Whether your business is a grocery store, beauty salon, apartment house complex, auto repair shop, manufacturing plant, restaurant, farm, etc., keeping your enterprise operating at a profitable level while balancing other business related issues can be a major challenge.

This booklet, " A Business Person's Guide to Banking in Maine" is designed to inform Maine businesses, especially those operating on a smaller scale, about various accounts and services available at Maine banks. Topics discussed in this booklet include: commercial checking accounts, NOW accounts, funds availability (float) on deposits, business savings accounts, SWEEP accounts, commercial lending, business plans, merchant credit card accounts, and selecting a bank.

Although this booklet is a publication of the Maine Bureau of Financial Institutions, credit must be given to the various business owners and bankers whose valuable input made this guide a reality.

The Bureau of Financial Institutions hopes you find "A Business Person's Guide to Banking in Maine" to be a valuable resource in selecting the best financial products and services for your business needs.

BUSINESS CHECKING ACCOUNTS

The commercial checking account is generally considered the cornerstone of small business banking. Businesses that properly maintain their checking account (i.e. keep accurate records and rarely if ever "bounce" checks) are off to a good start in their banking relationship.

The basic business checking account does not pay interest on funds deposited and in many respects resembles a standard consumer checking account. To compensate the business for the use of their funds, many financial institutions offer interest earned credits (IEC). IECs act like interest in that they offset some or all of the monthly service fees assessed against the business checking account. The size of the monthly IEC is generally dependent on the amount of funds on deposit. Since there are several ways to calculate IEC, the wise business person should always be sure to ask each prospective financial institution its method of calculation.

Service Charges/Fees: Basic business checking accounts often contain a variety of fees and charges. Business people should be aware of fees associated with business checking accounts and thoroughly weigh the impact they will have on their operations. These charges include:

  • Monthly Service Fee. A flat fee that the financial institution assesses for the use of the business checking account and rendering a bank statement (usually on the last business day of the month).
  • Charge for Checks Deposited. An item charge for each check deposited into the account during the month.
  • Charge for Checks Written. A per item charge for every check drawn against the business checking account.
  • Overdraft Charges. Charges for checks written against insufficient funds (i.e. "bounced checks").
  • Returned Check Charges. Charges for checks deposited that are not honored by the payee bank for such reasons as insufficient funds, closed account, improper endorsement, etc.

Other Charges. In addition to monthly service charges, there may be other fees associated with operating a checking account.

  • Account Reconciliation. The business provides its bank with a computer tape of issued checks which the bank then matches against paid checks it has on file. This type of service can be cost effective for businesses that write a significant amount of checks each month (500-1000 or more).
  • Charge for Checks. The charges associated with ordering checks vary greatly. As is the case with most products, volume discounts are commonly given. Checks bearing the company's logo or a special background are more costly than basic checks. Prices vary from bank to bank, vendor to vendor. Businesses are not required to purchase checks from their bank and may instead buy them from private vendors. One word of warning...make sure the checks purchased from a private vendor are of sufficient quality (adequate thickness, clarity and strength) to pass through high speed check processing equipment. Accounts whose checks cause a high rate of "jams" can be assessed a surcharge.
  • Night deposits. In general, there is no charge for locked, zippered night deposit bags. In the event the banking relationship is terminated, the customer must return them. Some banks offer plastic night deposit bags (for a fee) which are used once and discarded (recycled). This eliminates the need to send an employee to the bank to pick up empty night deposit bags.

OTHER TYPES OF BUSINESS CHECKING ACCOUNTS

In addition to basic commercial checking accounts, banks may offer other deposit relationships.

NOW Accounts: These interest-bearing accounts combine the features of checking and savings. Interest rates are usually below regular savings account rates. Account holders can withdraw funds by writing a Negotiable Order of Withdrawal (NOW draft), similar to a check, to a third party. Relatively high minimum balance requirements are common. Federal Deposit Insurance Corporation (FDIC) Regulation D allows the business deposits of an individual operating as a sole proprietor or an individual doing business under a trade name to maintain a NOW account in their name or in the "DBA" name. For profit organizations such as corporations, partnerships, associations, business trusts, or other organizations may not maintain NOW accounts. Ask your local banker if your business qualifies for a NOW account.

SWEEP ACCOUNTS: This type of account links a basic business checking account (or NOW account if you qualify) to an investment account. Funds are automatically transferred daily to maximize the earning power of the funds on deposit. Since most individuals do not have the time to calculate the amount of surplus funds in their checking account and make the transfer, the automatic nature of the SWEEP account can be advantageous. SWEEP accounts are generally designed for well-established businesses with strong cash flow positions since the fees assessed to service this type of account can be substantial.

SWEEP Tip... : In most instances the funds are "swept" into an account which is not insured by FDIC. Before entering into a SWEEP arrangement, find out how your funds will be invested and the type of security pledged against the account -- often they are invested in U.S. Treasuries which are backed by the federal government -- ASK!!

FUNDS AVAILABILITY

When you deposit a check into your business checking account it is important to realize that those funds are not always immediately available for use. This is especially important to know when writing checks that rely on a recently made deposit. Federal Reserve Board Regulation CC (Expedited Funds Availability Act) and Bureau of Financial Institutions Regulation #18 set forth the following maximum time frames for funds availability:

Items such as cash, financial institutions' cashier's checks, U.S. Government checks, U.S. Postal money orders, electronic payments (direct deposit) and State of Maine and local (Maine) government checks are generally available the next business day after date of deposit. (A business day is any weekday Monday through Friday excluding holidays.)

Local checks (drawn on Maine financial institutions)--funds must be made available within two business days after day of deposit.

Non-Local Checks (drawn on out-of-state financial institutions)--availability must be within five business days after day of deposit. (Note: First $100 of deposit must be made available on the next banking day.)

Exceptions to these time frames may occur when:

  • A check is deposited to a new account opened 30 days or less;
  • A check is deposited to an account that has been frequently overdrawn (bounced checks);
  • An account has deposits totalling more than $5000.00 in checks in a single day (funds must be made available on the 9th business day);
  • The bank doubts the collectibility of the check being deposited;
  • The customer re-deposits a "bounced check"; or
  • There is an emergency, such as a failure of communications or computer equipment.

SHOP AROUND!!! Federal Regulation CC and Bureau of Financial Institutions Regulation #18 are maximum time frames!!! Many Maine banks make funds available in far shorter periods than the maximums required by law. It pays to comparison shop!

ACCEPTING CHECKS AT YOUR BUSINESS

Stop payments, insufficient funds, lack of endorsement... there are many reasons for a bank to return a check deposited into your business checking account. As a business person, it is important to realize that a check you deposit is accepted by your financial institution on a conditional basis until final payment is made by the bank the check is drawn on. Below are some common sense banking tips involving the check acceptance/ collection process:

Know the Endorser: Like a teller at a bank, your cashier serves on the "front line" and can prevent your business from sustaining substantial losses due to forgeries. Cashiers should never be hesitant to ask an unknown person presenting a check for a positive form of identification--especially in third party check situations!! If, in fact, a forged check is cashed and your employee failed to check for I.D. (write down a driver's license number and compare the signature and picture), your business could be liable.

Customer Identification & the Law: Maine law discourages businesses from asking customers to provide them with a credit card as proof of identification when accepting checks. Many people choose not to avail themselves of credit cards, while others simply are not creditworthy. In addition, the recording of the customer's credit card number and expiration date on a check which already contains their name and address increases the possibility of credit card fraud. Items such as picture driver's licenses, social security cards and State I.D. cards generally serve as positive forms of I.D. in most cases.

Returned Checks: If you deposit a check that is returned for insufficient funds (NSF check) it is the policy of most banks in Maine to assess your account a fee for each NSF check deposited. If the bank redeposits the check a second time and it bounces, the fee can be charged a second time.

It's the Law!! When a person writes a check drawn on insufficient funds and after 5 days of being notified by their financial institution he/she takes no action to correct the situation (deposit funds to cover the check and bank overdraft fees), he/she could find himself/herself in violation of Section 708 of the Maine Criminal Code. The court system calls this offense " Negotiating a Worthless Instrument", punishable as a Class C or D Crime. For more information contact your local law enforcement agency or bank manager.

NSF Fees You May Assess: As a business operator in Maine you have the right to assess fees to customers whose checks are returned to you for insufficient funds. While Maine law does not set a limit on how much you can charge and how to disclose this fee to your customer, it is common practice in Maine to charge between $10.00 - $25.00 for returned checks. The notice of this NSF assessment fee should be posted prominently in the cashier's area. Mail order companies are wise to include a disclosure in their catalogues/ invoices, etc.

Collecting NSF Checks: If a customer's check is returned to your business because of insufficient funds you have the option of taking that check to the financial institution it is drawn on and presenting it for payment. When the check is presented at the teller's window you will be told whether or not there are sufficient funds currently on deposit to cover it. If adequate funds are on deposit, the financial institution will issue you a cashier's check or manager's check. Due to liabilities, banks generally do not cash checks made payable to a business.

In Conclusion...Accepting checks is a risk that most businesses must incur. To lower your potential for losses, develop a company policy that reasonably deals with accepting checks, ask your banker, local law enforcement people, and other area business people for input.

COINAGE, CASH AND LARGE CURRENCY TRANSACTIONS

Businesses that require large amounts of rolled coin can expect to be assessed a fee for this service. Generally there is no charge for businesses that only occasionally request orders of rolled coin. The same is true for orders of paper money (cash).

The Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970, more commonly referred to as "The Bank Secrecy Act", requires financial institutions to report large currency transactions in excess of $10,000. This regulation was issued by the U.S. Department of the Treasury to combat criminal activities such as the laundering of money by organized crime and tax evasion. If your business transactions fall into this category, the financial institution will have you fill out IRS Form 4789.

BUSINESS SAVINGS ACCOUNTS

Businesses that choose not to open a SWEEP Account or fail to qualify for a NOW account can earn a return on their deposited funds by opening an interest bearing savings or time deposit account. Listed below are some of the more popular options business people have for interest bearing savings accounts:

PASSBOOK AND STATEMENT SAVINGS ACCOUNTS: These savings accounts make it easy to access your money and in Maine are federally insured by the Federal Deposit Insurance Corporation. Due to the easy accessibility of your funds and limited risk, interest rates on these accounts are low compared with other accounts/investments.

MONEY MARKET ACCOUNTS: This specialized deposit account provides interest rates that are generally higher yielding than passbook or statement savings accounts. Interest rates are based on an index (some measure of the nation's economy) and can move up or down monthly. Most financial institutions require a large initial deposit. A limited amount of withdrawals are allowed monthly. These accounts are also federally insured.

CERTIFICATES OF DEPOSIT (CD'S): If you are interested in higher interest rates on federally insured deposits and your business's cash flow position allows you to "lock away" funds for a period of time, CDs may be for you. CDs require a minimum initial deposit ($500-$1000) and must remain on deposit for an agreed upon period of time (6 months, 1 year, 2 years, etc...). Funds withdrawn before the CDs maturity date often are subjected to " a substantial penalty for early withdrawal" which is usually equivalent to several months worth of interest, and can erode principal. Ask questions and read your CD's deposit contract before signing.

F.Y.I. The Maine Banking Code M.R.S.A. 9-B requires all financial institutions in Maine to insure their customer's deposits with federal deposit insurance. For commercial banks, savings banks and savings institutions, it is the F.D.I.C. Credit union accounts are insured by the National Credit Union Administration (N.C.U.A.), a federal agency. For more information about this insurance coverage, speak with your local banker or the FDIC (617) 320-1600 or NCUA (518) 464-4180 directly.

COMMERCIAL LOANS

There are literally hundreds of good reasons for owners/operators of businesses in Maine to borrow money ... expansion, purchase of inventory, the acquisition of a pre-existing business, etc. Whatever the reason, it is important to select the type of loan that best suits your business needs and to identify the lender offering the "best" financing. This section of the "Business Guide" also examines downpayments, personal guarantees, utilizing your personal residence as collateral, note/credit line renewals, the loan process, business plans, and government loan guarantors/granters.

LOAN TYPES: Below are some of the more popular types of commercial loans

TIME NOTES: These loans have a set maturity (generally 3 months to 1 year) and a set purpose (purchase of inventory, pay taxes, deposit on a piece of land, etc...). Depending on the strength of the borrower, the loans can be secured (stocks, deposit balance, real estate, etc.) or unsecured. Borrowers either pay interest monthly and principal (amount borrowed) at maturity or interest plus principal in a lump sum at maturity. Interest rates can be fixed or variable.

LINE OF CREDIT RENEWAL: The financial standing of a borrower who has a line of credit is reevaluated at least once a year. In most cases a credit committee of senior bank officers review the financial standing of the business and its repayment history before making a line renewal decision.

INSTALLMENT LOANS: Borrowers make regular, equal payments (usually monthly) over a fixed term (typically 1 - 5 years). Installment loans can be used for the purchase of individual cars and trucks, or pieces of equipment. Interest rates are either fixed or variable. Depending on factors such as the strength of the borrower and the amount borrowed, installment loans can be secured or unsecured.

TERM LOANS: Like installments, term loan payments are made regularly (monthly or quarterly). Term loans are frequently used for business expansion such as the purchase of heavy equipment, fleets of cars or trucks, or plant enlargement. Interest rates can be fixed or variable and loan terms vary with the financial strength of the borrower, type of collateral, etc.

LINES OF CREDIT: In these arrangements, the bank commits to make available to its customer a specified sum of money. The customer accesses the line of credit by visiting the bank and signing an individual note; or by writing a check from his/her business checking account where any overdraft is covered by the line of credit in a prearranged manner. Most often this credit instrument is secured by the company's real estate, receivables or inventory (asset based lending). Interest rates can be fixed or variable. Principal repayment scenarios vary depending upon the purpose and the strength of the borrower; interest is generally paid monthly.

TIP: Financial institutions, in general, are reluctant to renew time notes. If it is perceived that the borrower's needs are more long term, the lender may instead convert the borrower to a term loan or a line of credit.

CREDIT CARDS: Many businesses provide selected employees with credit cards for business travel and general purchases. The business is responsible to the bank underwriting the credit card loan for repayment. A portion of the outstanding balance plus interest must be paid each month the account has a balance. Interest rates are usually relatively high.

OVERDRAFT PROTECTION: In the event there are insufficient funds in a business checking account to pay an outstanding check, this line of credit automatically transfers funds into the checking account in prearranged increments ($50, $100, etc.). Like credit cards, interest rates on these types of extension of credit tend to be high. Repayment terms are generally similar to credit cards.

CONSTRUCTION LOANS: Typically written for terms of 6-12 months, construction loans provide the borrower with the funds to construct or add to business facilities. Monies are periodically advanced to pay for the various stages of construction: foundation work, framing, plumbing, electrical, dry wall, etc. The borrower is usually charged interest only on the advanced funds. Lenders periodically inspect the building site to ensure the actual construction agrees with the borrower's submitted plans and the funds being advanced. A portion of the funds is commonly "held back" until the lender is satisfied the work is completed as agreed. Once the construction phase is finished, some loan plans automatically convert to a permanent commercial mortgage either at a fixed or variable rate (see Commercial Mortgages). Other plans may require the permanent mortgage from another lender. Applicants should be clear on the terms/fees of any construction loan are and the subsequent permanent financing before construction commences.

COMMERCIAL MORTGAGES: With the exception of a generally shorter term (10-20 years vs. 15-30 years), commercial mortgages and residential mortgages are somewhat similar. Before the bank grants a commercial mortgage, a title search, survey and an appraisal must be conducted. Generally the business property serves as collateral. There can be instances where the lender may ask for additional sources of collateral to secure the loan.

COMPARISON SHOPPING FOR LOANS: Unlike consumer loans where the Annual Percentage Rate (APR) simplifies comparison shopping, commercial loans feature interest rates combined with a variety of fees and charges which you should separately compare. These fees/charges include: points (1 point = 1% of the amount borrowed), prepayment penalties, loan origination fees, late payment fees and collection fees. Carefully survey all potential lenders' interest rates and fees/charges before applying.

PRIME RATE: This is an interest rate normally reserved for customers borrowing from "Money Center" (large metropolitan) banks. The prime rate can be found in the financial sections of many daily newspapers. Caution: Some Maine banks have established their own "prime rate" which is generally higher than "Wall Street Prime"...be sure to ask!

BASIS POINTS: Not to be confused with "points" (see preceding paragraph), basis points is a term used commonly by commercial lenders when describing interest rates. 300 basis points equals 3.0%, 50 basis points equals .5%. A banker might say, "I'll give you that loan at prime rate (6%) plus 200 basis points (2%)" = 8%!

DOWNPAYMENTS: Commercial mortgage loans generally require a substantial down-payment. By their very nature, business properties have their highest value as a going concern. Should a lender foreclose and attempt to resell a business parcel, losses can be considerably higher than with consumer loans, hence, the large downpayment requirement.

LOAN TERM: Very simply, the longer the term (length) of your loan, the more interest expense you will pay over the term of the loan. To better illustrate the effects of interest rate, downpayment and loan term, please review the following example:

Mary Brown and John Smith are each interested in purchasing an established business--both sale prices are $105,000. Mary and John both aggressively comparison shopped for financing (interest rate = 10%) and made identical downpayments ($25,000). This is where the similarities end...

  Amount Financed Loan Term Monthly Payment Total of Payments
Mary Brown 80,000 10 years 1,057.27 126,864
John Smith 80,000 15 years 859.68 154,742
  • What if Mary didn't comparison shop for loan rates and instead randomly selected a lender charging 12% interest?
    • 80,000 10 years 1,147.77 137,732
  • Maybe John's lender allowed him to make a smaller downpayment and finance a larger amount. With the interest rate at 10%...
    • 100,000 15 years 1,074.61 193,429

As you can see from the above examples, the effects of the loan's term, interest rate and amount financed significantly affect the final repayment amount.

REFINANCING: If you have an existing commercial loan it might be worth it to solicit commercial lenders (including the one which currently has the loan) to see if they can offer you a lower rate. A $100,000.00 commercial mortgage at 10% interest equals a monthly payment of $1,075.00 - refinance at 200 basis points less, or 8% and the payment drops to $956.00 or $119.00 less/month, or $1,428/year. Some borrowers refinance at a lower rate, keep roughly the same monthly payment, but shorten their loan's repayment term. Smart borrowers also weigh the fees/expenses associated with refinancing, how much they owe and how much of their loan repayment term is left before agreeing to refinance. Carefully evaluate how long it will take you to recover the fee/expenses connected with refinancing at the lower rate and then make an informed decision.

PERSONAL GUARANTEES: In today's economic environment, it is not uncommon for a lender to require a personal guarantee before extending a commercial loan. In a commercial loan arrangement where the borrower personally guarantees the debt, the personal assets of the borrower could be seized in the event of loan default. Personal guarantees can be limited to a fixed dollar amount or unlimited (most banks require the latter).

PLEDGING YOUR PERSONAL RESIDENCE: Lenders are often eager to take the borrower's primary residence as collateral for a business loan for several reasons: (A) it increases the chance the borrower will do everything in his/her power to repay the loan; (B) it lessens the likelihood of a deficiency balance resulting from the liquidation of collateral should there be foreclosure and sale of the commercial property or good(s) acquired with the loan proceeds.

THE LOAN PROCESS: The decision whether or not to approve a commercial loan depends primarily on the financial strength of the borrower, value of collateral (if the loan is secured), and the reason(s) for borrowing. Commercial loan applicants routinely submit detailed business plans (page 18) to lenders. Several years of tax returns and financial statements (in some cases audited) are routinely submitted.

INFORMATION GATHERING (THE BORROWER)

Purchase and Sale Agreement: If you are buying an established business, the purchase and sale agreement will detail what you are buying. If the business is advertised as "fully stocked", the seller should provide you with a detailed listing of all the items.

Financial Records: There is no substitute for a carefully prepared financial statement. Larger businesses provide interested buyers with audited reports. These records should cover at least a 2-3 year period. The establishment of a new business generally requires financial projections.

Tax Returns: Compare and contrast the return with the financial statement. How much profit is the current owner making? What kind of salary is he/she paying him/herself? Review at least 2-3 years to see if trends are developing.

Sales Records: Which season, month, day is the busiest? A month by month sales record of the business you are interested in purchasing can indicate if the business is seasonal or year round. This factor can impact cash flow/borrowing considerations. Statistics such as how many items sold or services rendered and the average price per good/service is also important. New business ventures project these statistics.

Expense Records: Check the business' various expenses such as bills from suppliers, utilities, wages/benefits, taxes, advertising, insurance expenses, etc. What does it really cost to run this enterprise? Are there major, needed repairs the current owner has avoided making? Ask and observe!!!

Effect of New Debt: Maybe the business you are interested in purchasing is currently operating profitably with little or no debt service. Analyze how the new debt burden (commercial loan payments) will affect its future profitability.

Sale Price: An excessive purchase price forces a borrower to finance more which leads to higher monthly loan payments and possibly a failed business venture. Be cautious and deliberate when purchasing an existing business. Take your time-- negotiate price!!!!

Location: A wholesale distributor located adjacent to the turnpike in the rural outskirts of town might flourish while a retail business depending on "walk-in" traffic could fail in that same location. Visibility, ample parking and easy access by automobile can be important considerations.

Market Research: "Size up" the competition. Ask local people what they think about the existing business or a new business. What direction is the business headed? What about products and services? Their price structure? The location and hours of operation? The employees? What about competition? If the loan is to build a new business ask, "Can the local market support an additional business of this type? What does a new business have to offer to be successful in this area?"

THE BUSINESS PLAN: With the information collected, a business plan can be started. The written business plan integrates many of these above areas and provides the business person with an objective, comprehensive "blueprint" of a prospective or existing business' potential success. Earnings projections, funds needed to borrow, product/service line, personnel costs, market, physical location, competition, promotional/ advertising strategies, future expansion plans, and a general description of the business are integral parts of a successful plan. In some cases the business owner can produce a business plan by simply asking the lender what it should contain. Ask!! In other instances borrowers consult with outside firms, who for a fee, will produce a detailed plan.

F.Y.I.: The primary purpose of the business plan is to help the business owner better manage his/her enterprise--it's their collateral and credit history that is at stake!! Secondly, business plans provide the lender information on which to base a credit decision. The completed plan demonstrates to the lender that the applicant has taken the time to seriously consider what it is going to take to make the business run profitably.

THE CREDIT ANALYSIS (THE LENDER)

Business Plan: Provided with a business plan and detailed financial records, the lender now must examine the applicant's creditworthiness. Considerations of the quality of collateral (optional), downpayment (equity), the applicant's expertise in business, personal/business credit history, and financial capacity to repay the new debt are carefully reviewed.

Financial Analysis: The bank's credit analyst will review the business' past/current/future financial records to estimate current/future profitability. If the applicant is merely expanding an existing business or purchasing a major piece of equipment, the effect of the new debt load will be reviewed. The establishment of a new business requires a great deal of financial forecasting and estimation.

Appraisal: An appraisal is conducted to determine the value of the collateral vs. the actual sale price and loan amount (sale price - downpayment) in a secured loan scenario. In a default situation, the collateral should have sufficient value to cover the loan balance and any associated collection expenses. When the proceeds of the sale of collateral are less than the balance owed, the borrower remains liable for this amount. This is called a deficiency balance.

Credit Report: Either a consumer or business credit report is ordered to determine loan repayment history. Both paid and current loans are listed. Delinquent credit records generally remain on a credit report for 7 years, bankruptcy 10 years.

Debt Service Coverage Ratio: Another important part of the credit analysis is the determination of the borrower's debt service coverage ratio. The credit analyst divides the total of annual debt service (principal plus interest payments) into the borrower's cash flow.

Personal Financial Condition: The borrower's personal financial condition is also an important consideration. Since many new businesses are not initially profitable, the borrower should have the financial capacity to utilize assets such as personal savings, stocks and other more liquid investments to financially "ride out" this critical start-up period.

THE CREDIT DECISION: Large loan requests often need the approval of a group of senior lending officers frequently called the "credit" or "loan committee". They review the bank's internal analysis of the loan request and the borrower's business plan and financial information. Smaller requests are frequently approved or denied at the local branch level. Some of the larger banks often use a central underwriting department.

The decision whether or not to approve a loan, commercial or consumer, is a business decision the lender must make. Unless there are potential violations of law, regulators such as Maine Bureau of Financial Institutions, Federal Deposit Insurance Corporation (F.D.I.C.), the Office of the Comptroller of the Currency (O.C.C.), Office of Thrift Supervision (O.T.S.) and Federal Reserve Bank, do not intervene in individual lending situations.

LOAN SERVICING/DELINQUENCIES: You generally make your payments directly to the lender. Keep in constant communication with the lender in the event you cannot make your payments. The worst course of action is to ignore the delinquency problem and hope it will go away. In some instances lenders will suggest alternative repayment schedules to rectify the situation.

SKIP PAYMENTS: Individuals who harvest wood, lobstermen, and fishermen are familiar with the negative effect seasonal business cycles on cash flow. Loans to these types of businesses may have "Skip Payments" built into their repayment schedule. "Skips" anticipate seasonal slowness and defer the payments to a later date without the loan being categorized as delinquent. "Skip Payments" can also be a useful tool for a variety of other businesses as well.

ASSISTANCE PROGRAMS

U.S. Small Business Administration (SBA): The SBA was created by Congress in 1953 to provide assistance to small business through the use of loan guarantees with private lenders (usually banks), some direct loans from the SBA, and technical advice through workshops and individual counseling. SBA guarantees on individual commercial loans through private lenders can be as high as 90%. For more information about the SBA and their various services, speak with a commercial loan officer at your bank or contact the local SBA office nearest you.

Service Corps of Retired Executives (SCORE): This organization is partially funded by the SBA and provides free, confidential business counseling by retired business persons. SCORE was established in 1964 and has helped over 2.5 million clients in such varied areas as record keeping, sources of capital, marketing, personnel, etc. For more information contact your local SCORE chapter.

Finance Authority of Maine (FAME): This independent State agency was formed in 1983 to aid in business development and employment growth in Maine. Working closely with private lenders, FAME provides loan insurance and a variety of other valuable services for both large and small businesses. For more information about FAME, please write or call:

Finance Authority of Maine
83 Western Avenue
P.O. Box 949
Augusta, ME 04332-0949
TEL: (207) 623-3263
FAX: (207) 623-0095
TDD: (207) 626-2717

or contact a commercial loan officer at your bank.

Maine Department of Economic and Community Development (DECD):

This department of state government assists Maine businesses through a variety of programs. The DECD features a toll-free line (1-800-872-3838) for your business questions and referrals.

Local & Regional Development Agencies: Check your telephone directory or ask the Department of Economic and Community Development for the nearest local or regional agency near you.

MERCHANT CREDIT CARD ACCOUNTS

Most retail businesses in Maine allow their customers to utilize credit cards when making a purchase. It is generally agreed more sales are made as a result of this convenience. Business owners/managers should be aware of the features/costs associated with the merchant credit card account in order to find the most competitively priced product.

DISCOUNT RATE: When a customer purchases a $100 item from a business using his/her credit card, the merchant might only be credited $97 dollars! The $3 (or 3%) kept by their bank for processing the charge is called the discount rate. Generally the higher the average ticket price (i.e. sale price/transaction), the lower the discount rate. Some processors offer lower rates/fees for high volume merchants. It's negotiable!!

BUNDLING VS UNBUNDLING OF FEES: There are numerous fees associated with merchant credit card accounts; transaction fees, monthly statement fees, terminal servicing fees, annual fees, point of sale (POS) terminal fees, etc. Processors generally offer either a higher discount rate and little or no additional fees (Bundled Pricing) or a lower discount rate and the full range of fees (Unbundled Pricing). Be a smart shopper and determine which pricing structure is right for your business!

POS TERMINALS VS IMPRINTERS: In today's high tech environment processors encourage merchants (whenever economically practical) to utilize electronic POS terminals over manual imprinters. POS terminals feature less paperwork, faster posting of the sale, and more effective credit card fraud deterrence and generally cost less (discount rate) per transaction. However, there are up-front fees which should be factored into your decision.

FUNDS AVAILABILITY: Some processors give merchants next day credit for transactions while others may take 3-7 days. Generally POS terminals provide merchants with quicker funds availability than manual imprinters.

SIGNATURES, EXPIRATION DATES AND PICTURES: Always compare the signature on the back of the credit card with the customer's signature on the receipt. Merchants utilizing imprinters must check the card's expiration date--POS terminals generally do this automatically. Some credit cards carry a picture of the cardholder to combat fraud.

MERCHANT CONTRACT: This document is fairly similar from one processor to another. This signed document contractually identifies the responsibilities by which both the merchant and the processor must abide. Issues such as time of credit for deposits, charge-back procedures and termination requirements are just some of the areas covered.

SELECTING A PROCESSOR: The bank with which you have a commercial relationship may not be in the best position to serve your credit card business needs. A growing number of business owners in Maine are comparing the prices/service levels of other processors and saving money.

SELECTING A BANK

There are many components that combine to create a successful working relationship between a business owner and their bank. Some of the factors can be measured in the pricing of bank products and services while others are more personal in nature.

PRICING OF SERVICES: As was discussed earlier in the booklet, the pricing of bank products and services can vary greatly. Since banks are constantly adjusting their fee structures and interest rates, it makes sense for established businesses to re-evaluate their present bank's products and services at least every few years!

ACCESSIBILITY: It may be important to have the bank located closely to your business. Other accessibility factors you could consider include ample parking, a drive-up window, an automated teller machine network (ATM's), state-wide branches, banking by mail/telephone, etc.

SERVICE/COMMUNICATION: There is no substitute for good service/communication. If you have a question about your checking account statement, the way a loan payment was applied or any other banking question/problem, you should feel confident that personnel at the bank you do business with can provide you with an accurate response in a reasonable time period. If you are not satisfied with their response - tell them! When selecting a bank for the first time, ask other business people in the community about the service level at their bank.

TIP: Should you have an unresolved complaint with your financial institution, contact the Bureau of Financial Institutions, 36 State House Station, Augusta, Maine 04333-0036. The telephone number is (207) 624-8570.

OTHER BANKING PRODUCTS AND SERVICES

There are many other banking products and services of which business people, for a fee, can avail themselves. The following is a partial listing of additional products/services.

SAFE DEPOSIT BOX: This is a locked drawer in a bank's vault that is rented to consumers and businesses for the safekeeping of documents, jewelry, coins, etc.

TRUST SERVICES: The financial institution acts as a trustee (makes financial decisions) or an agent for stocks, property, bill payments, bank accounts, etc.

LOCK BOX: The address on the business' remittance (bill) is a post office box which is serviced by the bank. The bank operates as a small bookkeeping department for the business by processing the business's accounts receivables. The rationale for the lock box is to reduce time for mailing and check clearing (funds availability).

PAYROLL SERVICES: Some financial institutions offer payroll services to their commercial customers.

WIRE TRANSFERS: Funds can be wired out from your bank to another financial institution. All banks have this capability. Ask!

ELECTRONIC FUNDS TRANSFER: Arrangements can be made to have funds electronically transferred from your customer's bank account (with their permission) to your businesses for the payment of a recurring charge (health club membership, monthly rent, insurance payment, etc.) or to have your employees' payroll checks electronically deposited in their account(s) at their bank.

FOOD STAMP PROCESSING: If your business sells food items, ask prospective banks if they have the capacity to process food stamps.

CONCLUSION

This guide is designed to provide consumers with a variety of information to assist them in selecting a mortgage loan that "fits" their financial needs. Because of the competitive nature of the mortgage industry, new products and services are constantly being developed. As a mortgage borrower in the 1990's, you should be aware of these new developments and use them to your advantage.

 

Last Updated: June 5, 2013