Post Date: 4/11/2024

A recent legal settlement by the National Association of Realtors® (NAR) could have a major impact on how homes are bought and sold in the U.S.

In the case of Burnett v. NAR, NAR agreed to pay $418 million in damages to a group of home sellers who sued over NAR’s long-standing agent compensation policy. The plaintiffs alleged that this policy — in which home sellers pay commissions to both the buyer’s and seller’s agent — resulted in inflated fees and price-fixing.

As part of the settlement, NAR also agreed to rewrite the rules that led to this commission practice, which is known in the industry as cooperative compensation. The new rules are scheduled to take effect this July.

Commissions in U.S. Top Other Countries

Real estate commissions in the U.S. are much higher than in many other countries, mainly due to cooperative compensation. For example, commissions have averaged between 5% and 6% in the U.S. for many years, with half going to the seller’s agent and half to the buyer’s agent.

On a $400,000 home, the real estate commissions could total as much as $24,000 in the U.S., which is reflected in the home’s final sale price.

Previously, sellers were not required to pay buyer’s agents commission. Under the new rules, the National Association of Realtors cannot require listing agents or sellers’ agents to offer cooperative compensation to buyers’ agents. Additionally, sellers are prohibited from offering cooperative compensation to buyer agents via the Multiple Listing Service (MLS). Instead, the settlement agreement requires buyers and sellers to negotiate broker commission directly with their respective brokers and enter into written agreements that conspicuously specify and disclose brokerage compensation.

After the settlement was announced, NAR stated: “Two critical achievements of this resolution are the release of most NAR members and many industry stakeholders from liability in these matters, and the fact that cooperative compensation remains a choice for consumers when buying or selling a home.”

Today’s Homebuying Marketplace

The new rules reflect the reality of today’s home buying marketplace in which many buyers search for homes online themselves without assistance from an agent. However, buyer’s agents still earn up to 3% commissions regardless of how much (or little) they do to help buyers find a home.

Another criticism of this commission structure is that buyer’s agents aren’t incentivized to get the lowest price for their clients since they earn a higher commission on higher-priced homes. In fact, their incentive is just the opposite, at least financially.

Empirical evidence demonstrates that buyer’s agents tend to steer their clients away from homes if the seller’s agent is paying less than a 2.5% commission. On the Missouri multiple listing service (MLS), 90% of transactions paid the buyer’s agent a 3% commission.

“Decoupling will allow commissions to be removed and negotiated down, lowering both housing prices and overall consumer costs,” said Steve Brobeck, the retired executive director of the Consumer Federal of America in a New York Times article published in March. “Over time, both sellers and buyers will force rates down through negotiation and comparison shopping in a more price-transparent marketplace.”

According to Brobeck, Americans spend about $100 billion each year on real estate commissions. He believes that the NAR settlement could drop this by at least $20 billion and possibly as much as $50 billion.

How the Settlement Could Affect Homebuying

Nearly nine out of every 10 home sales are handled by a real estate agent associated with NAR, so the settlement is likely to have wide-ranging effects on the U.S. homebuying industry. Here are four ways the settlement could affect homebuying:

1. A new real estate commission structure will emerge. The settlement probably spells the end of the traditional 5%-6% real estate commission that’s split equally between seller’s and buyer’s agents. Going forward, many real estate agents will have to negotiate commissions with clients to compete for business.

Exactly what the new commission structure will look like isn’t clear yet, but it will likely emerge over the next couple of years. In the New York Times article, Brobeck said he doesn’t expect commissions to drop as low as 1% or 2% like in the U.K. where there’s usually only one agent involved in a home sale. “But they certainly will decline substantially, and commissions will also increasingly reflect the competence and efforts of agents on sales,” he stated in the article.

2. Home sellers and home buyers may need to shift their strategies. Under the previous commission structure, home buyers essentially paid no commission since their agent split the commission with seller’s agent. In the future, buyers may need to pay their agents themselves and negotiate this commission with the agent as either a flat fee or percentage of the sale.

Home buyers could still ask sellers for a price concession to help cover their agent’s commission. But this could put a buyer in a weaker negotiating position if there are multiple offers on a home, since the seller could accept an offer from another buyer who isn’t requesting a price concession.

3. The practice of “steering” will become less common, if not eliminated. Previously, NAR required seller’s agents to post the commission paid to buyer’s agents on the database where homes were listed for sale (typically the MLS). This sometimes led buyer’s agents to “steer” their clients to more expensive homes where they would earn the highest commissions. The NAR settlement eliminates the requirement to post commissions paid to buyer’s agents, which should cut down on steering, if not eliminate it completely.
4. There may be fewer real estate agents to choose from. NAR membership peaked at 1.6 million members in 2022 after a major influx of new Realtors® during the pandemic as mortgage rates fell and the housing market boomed. But many newer or part-time agents have struggled since interest rates have risen drastically over the past couple of years. In fact, half of all real estate agents sold just one home or less last year.

With the changes now coming to commissions, some experts predict a wave of departures by real estate agents in the coming years. For example, one investment banking firm predicts that one million agents will leave the field as a result of the new commission structure. Veteran agents with strong reputations and extensive networks will likely find it easier to stay in the industry than newer agents who are still struggling to find their footing.

Will Home Prices Fall?

It’s still unclear how the NAR settlement might affect home prices. At first glance it might seem like it would lower the total price since the agent commission may fall. The new rules from NAR don’t take effect until this summer so they won’t affect home sales during the spring buying season. This also gives buyers, sellers, and real estate agents a little bit more time to plan strategies for how they will adapt to the new environment.

https://www.nytimes.com/2024/03/15/realestate/nar-realtors-settlement-takeaways.html

https://www.wsj.com/articles/national-association-of-realtors-settlement-home-buyers-sellers-commission-6b85bb82?mod=opinion_lead_pos1

On April 6, 2022, Fannie Mae introduced attorney-opinion letters (AOLs) as an alternative to title insurance for certain home mortgages to attest that there are no problems with a property’s title. Then last December, Fannie announced that it would expand the types of mortgages it will purchase that rely on AOLs to include condos and properties subject to a homeowner’s association (HOA). Freddie Mac introduced AOLs as an alternative to title insurance in May of 2020.

This is part of efforts by the Biden Administration to make housing more affordable by lowering closing costs, of which title insurance is one component. Policy changes such as this by Fannie Mae and Freddie Mac can play a big role in who qualifies for a home mortgage and what the terms of the loan are, including the interest rate.

The Critical Role of Title Insurance

Title insurance is widely accepted in the mortgage industry as a safeguard for home purchasers and mortgage lenders to protect them from title-related complications that can arise after closing such as liens, easements, and unrecorded deeds. Therefore, it’s not surprising that the title insurance industry has strongly objected to the use of attorney-opinion letters in lieu of title insurance.

In a recent update, the American Land Title Association (ALTA) stated that unregulated title insurance alternatives could imperil the stability of the housing market and property rights of homeowners. “AOLs fail to provide the protections that really matter to homebuyers,” stated ALTA President Don .

“Title insurance provides more comprehensive coverage, particularly related to risks not easily discoverable by a simple public records search,” said ALTA CEO Diane Tomb in a Wall Street Journal article published on January 16, 2024.

Potential Problems with Attorney-Opinion Letters

The ALTA update points to several potential problems that could arise if an AOL is used instead of title insurance, including the following:

• One-third of all claims paid by title insurance companies are for issues that cannot and would not be found in a public records search. These issues remain uncovered under an AOL, according to ALTA.

Mortgages for condominiums subject to HOA bylaws are especially vulnerable to risks not revealed by a public records search, which is included with title insurance. This includes unpaid HOA dues and assessments. Title insurance offers specific endorsements to address issues like these, but AOLs offer no such protection.

• In so-called “seller pay” states, which constitute the majority of states, AOLs can actually increase expenses for homebuyers beyond what they would pay for title insurance. In these states, the seller pays for the homebuyer’s title insurance policy while homebuyers only have to pay for a lender’s title insurance, which is less expensive (often as little as $150). Other discounts can make title insurance even less expensive.
• Unregulated title insurance alternatives such as AOLs lack the transparency and basic consumer protections provided by state insurance regulation. Title insurance policies are backed by statutorily required financial reserves to cover future claims risks, but AOLs aren’t. This creates additional risk for homebuyers.

Despite claims by some AOL providers that attorney-opinion letters offer full coverage, they don’t provide the same protection that’s typically available with title insurance, which covers risks that aren’t easily found by a simple public records search. These may include federal tax and HOA liens on property. Also, unlike title insurance, AOLs do not cover fraud or forgery of title documents.

Are Title Insurance Fees Really Regressive?

An article recently published by First American Financial Corporation examined the initial claim by Fannie Mae that title and settlement fees are a high-burden and regressive closing cost (i.e., they cost proportionally more for low- and moderate-income borrowers). According to the article, the difference in title and settlement fees between all homebuyers and low-income, first-time homebuyers is miniscule: 0.7% for all homebuyers and 0.84% for low-income, first-time homebuyers.

Also, the Fannie Mae analysis failed to distinguish between fixed and variable fees, stated the article. Title policy premiums are variable and generally set as a percentage of the loan balance and any analysis of alleged regressive closing costs (including title insurance) should consider the different nature of these fees. In this instance, any alleged regression of title insurance fees could be completely eliminated.

In a subsequent white paper published in 2022, Fannie Mae acknowledged that title and settlement fees are neither regressive nor do they represent a significant component of overall mortgage closing costs. “Economically meaningful differences in costs across borrower groups are not evident in title and settlement charges,” stated the white paper.

According to Fannie Mae, the largest life-of-loan mortgage costs are property taxes and recording fees (9.32%) These are followed by fees paid to the mortgage-backed security (MBS) investor (9.04%), fees paid to the lender (4.41%), homeowner’s insurance (2.92%) and fees paid to the loan servicer (1.24%). The title insurance premium accounts for just 0.42% of life-of-loan mortgage costs.

What’s more, the cost of title insurance is not listed as a significant barrier to homeownership in a recent study conducted by the National Association of Realtors (NAR). Elevated home prices and mortgage rates and limited home inventory within their price range are the main reasons potential buyers listed for not buying a home now, according to the NAR study.

Legislation Would Mandate Title Insurance

Bipartisan legislation has been introduced in Congress — the Protecting America’s Property Rights Act — that would require homebuyers to purchase title insurance from a state licensed and regulated title insurance company for mortgages purchased by government-sponsored entities (GSEs), including Fannie Mae and Freddie Mac.

“Title insurance serves as an important guardrail to help protect homeowners and lenders from title defects that could jeopardize their investment,” says Capital Bank Fiduciary Deposit Banker, Angela Saiz. “A home is the biggest purchase most people make in their lives, so I don’t believe it’s wise to jeopardize this by trying to save a few dollars by replacing title insurance with an attorney opinion letter.”

Toni Carroll, Capital Bank’s new VP of Fiduciary Banking, agrees: “The data reveals that in many instances, choosing an attorney-opinion letter can be even more expensive than purchasing title insurance. Why would any homeowner make this choice when it actually costs more money and offers less protection?”

ALTA has created a resource guide with a list of Frequently Asked Questions about title insurance vs. attorney opinion letters, including the wide gaps in coverage presented by AOLs and the shortcomings of their use.

The issue of attorney-opinion letters vs. title insurance will be a hot topic of discussion at the ALTA Advocacy Summit in Washington, D.C., May 6-8. You can register for the event online, as well as join ALTA’s Title Action Network to help advocate for the Protecting America’s Property Rights Act.

Buyouts in partnerships are not uncommon. Sometimes one business partner decides they have different goals from the other or wants to retire or shift into a different line of business.

When this happens, the departing partner will usually need to buy out the other partner or partners. Partner buyouts can be complex transactions, especially if the buyout must be financed and the partner is unsure about where to source the capital to facilitate the transaction.

Advantages of SBA Loans for Partner Buyouts

One source of financing for partner buyouts is a Small Business Administration (SBA) loan. SBA lending is designed to help small businesses acquire necessary funds for a range of activities, including partner buyouts. SBA loans offer a number of advantages for owners who need to buy out a partner, including the following:

1. Access to Adequate Capital — With loan amounts up to $5 million, the SBA 7(a) program is especially well-suited for these types of transactions, offering ample funding to buy out a partner’s ownership interest.
2. Favorable Terms and Conditions — SBA loans offer long-term financing solutions with relatively low interest rates. This is especially beneficial for partner buyouts since the terms provide predictability and affordability, enabling the company to manage the buyout without unduly burdening the business’ cash flow.
3. Versatility — SBA loans are not confined to a specific type of business or industry, though some businesses and industries are not eligible for SBA financing. This versatility makes them a flexible financing solution to partners of a broad range of different types of businesses.
4. Lower Down Payments — Conventional loans often require large down payments, which can place an immense strain on a business’s resources. In contrast, SBA loans require smaller down payments, which provides significant relief to businesses undergoing partner buyouts.
5. Preservation of Working Capital — With lower down payments and longer repayment terms, SBA loans enable businesses to retain working capital. This preserved capital can be reinvested in business growth and expansion, instead of being tied up in the buyout process.

New Rules Favor SBA Loans for Partner Buyouts

Also, new SBA rules on acquisitions make it easier to use an SBA 7(a) loan for a partner buyout. Previously, it was harder to use SBA loans for this purpose because the buyout process could potentially leave the business with negative equity. Now, the borrower does not need to contribute any equity toward the deal if the business has a debt-to-net-worth ratio of 9:1 and the remaining owners have held the same or increasing ownership interest in the business for at least the last 24 months. If the ratio is higher than this, the borrower must make a 10% down payment.

Secure a Business Valuation

The SBA requires a business valuation for all change of ownership transactions, and the valuation must be ordered by the bank. So before financing for a partner buyout can be secured, all partners must agree on a business valuation. If the partners can’t agree on this, an independent business valuator may need to be hired to come up with a valuation everyone can accept.

Also keep in mind that lenders will want to see that the business will remain viable after the partner leaves. So be sure your financial statements are in good shape and you have a succession plan before applying for an SBA loan to finance a partner buyout.

How Capital Bank Can Help

An SBA 7(a) loan is a robust and viable option for a partner buyout. The benefits of an SBA loan, from access to adequate capital to the preservation of working capital, underscore their utility and relevance in today’s business landscape.

Tax planning is a crucial component of business success. Because as the old saying goes, it’s not how much money you make that counts, but how much money you keep.

With tax season approaching, now is a good time to think about business tax strategies. Here are three tax strategies to consider with your CPA for tax season and throughout the year.

1. Take Advantage of Business Deductions

Taking advantage of legitimate business deductions may be the best way to lower taxable income and reduce your tax bill. Here are a few of the most valuable business deductions:

• Business operating expenses — These include rent or mortgage payments, utilities, office equipment and supplies, advertising expenses, insurance premiums and professional service fees.
• Employee benefits — You may be able to deduct contributions your business makes to employee health insurance, health savings accounts (HSAs), flexible spending accounts (FSAs) and retirement plans, including 401(k)s and SEP IRAs.
• Business travel expenses — Expenses related to transportation, lodging and meals may be deducted if you or your employees travel away from your home or main place of work for longer than an ordinary day’s work. These expenses must be ordinary and necessary, not lavish or extravagant.

2. Utilize Tax Credits

Tax credits may be even more valuable than deductions because they reduce business taxes on a dollar-for-dollar basis. Here are a few of the most valuable business tax credits in 2024:

• Research and Development (R&D) Tax Credit — This credit was made permanent in 2015 and also modified to benefit small businesses. However, only three out of 10 small business that qualify for the R&D tax credit claim it. A wide range of activities qualify for the R&D credit including developing new products, enhancing existing products and streamlining manufacturing processes.
• Work Opportunity Tax Credit (WOTC) — This credit has been extended until the end of 2025. Youmay be able to claim the WOTC if you hire qualifying employees from certain target groups, including veterans, ex-felons, the disabled and individuals receiving public assistance. The credit is based on the employee’s first-year wages.
• Energy Efficiency Investment Tax Credit (ITC) — The Inflation Reduction Act (IRA) includes a 30% investment tax credit (ITC) for businesses that purchase and install solar energy systems before 2033, as well as a $5 per square foot tax credit for energy efficiency improvements that lower a business’ utility bills.
• Retirement Plan Tax Credit — Your small business may be able to claim a tax credit of up to $5,000 over three years for eligible startup costs if you establish a new qualified retirement plan. This includes a SEP, SIMPLE IRA or 401(k) plan. You must have 100 or fewer employees to qualify for the credit.

3. Capture Bonus Depreciation … While You Still Can

Asset depreciation is a tax break that mayenable small businesses to deduct the cost of certain property and equipment over a number of years. Part of the cost is deducted each year until the cost is fully recovered at the end of the term.In 2002, Congress enacted bonus depreciation to encourage business investment after 9/11. This allowed businesses to deduct 50% of the cost of eligible assets in a single tax year, providing a big tax savings during that year. The Tax Cuts and Jobs Act changed this in 2017 to allow businesses to deduct 100% of the cost of eligible property placed in service before January 1, 2023.

Bonus depreciation started phasing out last year, but it’s still available for three more years. You may be able todeduct 60% of the cost of eligible property placed in service in 2024, 40% of the cost of eligible property placed in service in 2025 and 20% of the cost of eligible property placed in service in 2026. Bonus depreciation disappears in 2027 unless Congress acts to renew it.

A wide range of assets qualify for bonus depreciation, including business equipment and machinery, vehicles, computers and office furniture. Buildings qualify for regular depreciation but not bonus depreciation, though certain building improvements may qualify for bonus depreciation. Land and collectibles do not apply for any depreciation.

Start Planning Now

Now is the time to get ready for tax season and plan business tax strategies for the upcoming year. Be sure to consult with your accountant or CPA before implementing these or any other tax strategies for your business.

*We are not tax experts. It’s essential to consult with your accountant or CPA before implementing these or any other tax strategies for your business.

Post Date: 2/12/2024

In recognition of Black History Month, Capital Bank is spotlighting prominent African Americans who have been pioneers in the financial services industry. These African American entrepreneurs demonstrated a strong spirit of innovation, resilience and impact that changed the financial and business worlds.

Maggie Lena Walker

Maggie Lena Walker was the first African American woman to charter and serve as president of a bank in the United States. In 1903, Walker founded St. Luke Penny Savings Bank in Richmond, Virginia, after discovering that white-owned banks often didn’t accept deposits from Black organizations. The bank was seeded with capital raised from members of the Independent Order of St. Luke, hence the bank’s name. It served more than 50,000 members in 1,500 local chapters.

In 1930, St. Luke Penny Savings Bank merged with two other Black-owned banks to form Consolidated Bank & Trust, where Walker served as chairperson of the board of directors. This bank operated continuously under Black ownership until 2005, making it the oldest continuously operated Black-owned bank in the U.S. up until this time. It was acquired by Peoples Bancorp in 2021.

O.W. Gurley

O.W. Gurley was the founder of what became known as Black Wall Street in Tulsa, Oklahoma. In 1906, he purchased 40 acres of land that became known as Greenwood, where he ran businesses and supported other Black entrepreneurs including owners of brickyards, theaters, restaurants, salons, medical practices and law offices. Greenwood eventually became a thriving area with its own school system, bus service, post office and bank. It was said that a dollar changed hands 19 times in Greenwood before it left the community, which speaks to its self-sustenance.

Gurley was one of the wealthiest men in Tulsa before his property, along with all of Black Wall Street, was destroyed by the Tulsa Race Riot of 1921 and he was forced to flee the community. He lost most of his fortune, which was estimated to be almost $200,000.

Reginald F. Lewis

Reginald F. Lewis founded and built the first Black-owned business to surpass $1 billion in annual revenue. Before becoming an entrepreneur, the Harvard Law graduate helped establish Wall Street’s first African American law firm where he became special counsel to major corporations including General Foods and Equitable Life. In 1983, his firm TLC Group performed a leveraged buyout of McCall Pattern Company, which was struggling. After a turnaround, he sold it four years later and realized a 90-to-1 return on his investment.

In 1987, Lewis spearheaded a $985 million deal to purchase Beatrice Foods, the largest leveraged buyout of overseas assets by a U.S. company at the time. As Chairman and CEO of the new TLC Beatrice International Foods, Lewis repositioned the company, paid down debt and increased net worth. By 1992, the company had reached annual sales of $1.8 billion.

Douglas E. Harris

Douglas E. Harris was one of the first African Americans to serve as general counsel of an FCM. He became general counsel at JP Morgan Futures in 1982 where he served for more than a decade before serving as the senior deputy comptroller for capital markets at the Office of the Comptroller of the Currency. Here, he oversaw the regulation and supervision of banks’ capital market activities and development of risk management policies.

In 2001, Harris became the COO and general counsel of BrokerTec Futures Exchange and BrokerTec Clearing Co. — he was the first African American to serve as the general counsel of an exchange and clearing house. After this, he became managing director at Promontory Financial Group in 2004. Harris was inducted into the FIA Hall of Fame in 2021.

Robert L. Johnson

Robert L. Johnson founded Black Entertainment Television (BET) in 1980, building it from a small cable outlet with only two hours of weekly programming to a broadcasting juggernaut with an audience of more than 70 million households. In 1991 BET became the first Black-controlled company to be listed on the New York Stock Exchange. Johnson sold BET to Viacom in 2001 for $3 billion, which made him the first African American billionaire.

Johnson also became the first African American owner of a major U.S. professional sports team when he purchased the NBA Charlotte Bobcats and the WNBA Charlotte Sting in 2004. In addition, he co-founded Our Stories Films in 2006, which created family-oriented movies aimed at African American audiences.

Russell L. Goings Jr.

Russell L. Goings Jr. founded First Harlem Securities in 1971, which was the second African American-owned brokerage firm to own a seat on the New York Stock Exchange, after an injury kept him from playing professional football with the Buffalo Bills. At this time, the chances of a Black man working for a Wall Street brokerage firm were “nil to none,” he is quoted as saying. Goings was one of the first to recognize the opportunity for a Black stockbroker to present new investment opportunities to wealthy Black athletes and entertainers.

Goings structured First Harlem Securities so that it included several principals with voting stock, which brought more African Americans into the NYSE and changed the character of Wall Street. After leaving First Harlem Securities in 1976, Goings launched a new career as a dealer in African American art, eventually serving as the first Black chairman of the Studio Museum in Harlem.

Rose Meta Morgan

Rose Meta Morgan was one of the founders of the Freedom National Bank in New York, the city’s only Black-owned commercial bank. Before this, Morgan owned and operated the Rose Meta House of Beauty in Sugar Hill, which became the largest African American beauty parlor in the world by 1946, grossing annual sales of more than $3 million. In 1955, she expanded and opened Rose Morgan’s House of Beauty in New York City — it included a salon, dressmaking department and charm school — and she added a wig salon in the early 1960s. Throughout her beauty career, Morgan employed and trained more than 3,000 people.

Morgan’s challenges in obtaining business financing due to her race prompted her to get involved in the banking industry, eventually helping start Freedom National Bank in 1964. According to Morgan, she could borrow money from her bank to buy a car but not expand her business.

Capital Bank salutes these and countless other Black entrepreneurs who helped shape the business and financial markets we know today.

Post Date: 1/23/2024

In the dynamic and often unpredictable world of business, having a roadmap is not just useful—it’s essential. This is where a business plan comes into play. It serves as a strategic guide, a blueprint for decision-making, and a vital tool for growing your business.

Let’s first explore reasons why a business plan is crucial for your business:

Direction and Clarity: A business plan provides direction, helping you to define your business objectives and strategies. It clarifies your business idea, its viability, and how it intends to achieve its goals.

Resource Management: It helps in efficient resource allocation. Knowing where to invest time, money, and human resources makes your operations more effective.

Risk Mitigation: A business plan identifies potential risks and outlines strategies to mitigate them. This proactive approach can save time and resources in the long run.

Obtain Financing or to Attract Investors: If you are planning on having people invest in your business, they need to know that your business has a clear plan for growth and profitability. Additionally, most growing businesses at some point do require some type of financing. A well-crafted business plan can make the difference in securing a loan for your business to expand.

Performance Measurement: It serves as a baseline against which you can measure your business’s performance, helping you stay on track or pivot when necessary.

Key Components of a Business Plan

Executive Summary: A snapshot of your business plan, highlighting the key points.

Business Description: Details about your business, the market needs it addresses, and its unique selling propositions.

Market Analysis: In-depth understanding of your industry, market trends, target audience, and competition.

Organization and Management: Your business’s organizational structure, details about the ownership, and profiles of the management team.

Products or Services: Description of your products or services and how they benefit your customers.

Marketing and Sales Strategy: How you plan to attract and retain customers and your sales approach.

Funding Request: If seeking funding, specifics of your requirements, and how you plan to use the funds.

Financial Projections: Detailed forecasts of income, cash flow, and balance sheet. It’s important to illustrate your business’s financial health and growth potential.

Appendix: Any additional information like resumes, permits, or legal documentation.

Developing a business plan might seem like a daunting task, but its importance cannot be overstated. It’s not just a document but a strategic tool that can pave the path to success. Remember, a business plan is not static; it should evolve as your business grows and adapts to new challenges and opportunities.

If you need a little help getting started, you can visit the SBA’s website by clicking here. The SBA offers templates that make sense for your business as well as sample plans.

Post Date: 1/17/2024

With the advent of digital payments, far fewer individuals today use paper checks to pay for goods and services than in the past. In fact, many retailers no longer accept checks for payment.

So, it’s ironic that check fraud is currently on the rise. According to the Financial Crimes Enforcement Network (FinCEN), 680,000 cases of possible check fraud were reported in 2022, which was nearly twice as high as the year before when 350,000 possible cases were reported.¹

Today, check fraud is often perpetrated by organized criminal enterprises that steal mail in bulk from post-office boxes and even rob mail carriers at gunpoint. The thieves then remove checks from the bulk mail and create forged identifications to cash or sell them on the black market.

B2B Transactions Especially Vulnerable

While check usage has dropped drastically among consumers, checks are still used by more than one-third of businesses to pay vendors and suppliers, according to the 2022 B2B Payments Survey Report.² This makes business-to-business transactions potentially vulnerable to fraud.

There are several reasons for this. For starters, advanced printer technology makes it relatively easy for criminals to create business checks that look and feel real. Also, paper checks don’t permit some of the fraud protections offered by digital payments, such as biometrics and two-factor authentication.

In addition, check float — or the time between when a check is written, cashed and cleared — creates an opportunity for check fraud to go undetected until it’s too late to stop it. There’s typically no float with digital payments, which mostly eliminates this risk.

Types of B2B Check Fraud

There are a number of different types of B2B check fraud. Here are a few of the most common:

• Check washing — This starts with a stolen check, often from a mailbox. Thieves then “wash” the check by using a solvent to remove the ink and change the recipient’s name and the dollar amount. Washed checks are also sold on the dark web.
• Check kiting — This scam takes advantage of check float. In a typical scheme, thieves will open an account at two different banks, write a check from one account to the other and cash it out from the second account before the fraud is discovered. More elaborate check kiting schemes use multiple banks and accounts and a series of revolving checks.
• Cash-back scams — With this scam, customers use a phony check to pay more than the purchase price for a product or service and request a refund for the overpayment before the check bounces. Victimized businesses lose both their inventory and the amount refunded.
• Stolen checkbook — This could be the worst type of check fraud. Once thieves steal a corporate checkbook, they can write as many fraudulent checks as there are in the book, in any amount they choose. Given the float time, your business could lose substantial funds before the fraud is detected.

How to Prevent B2B Check Fraud

Fortunately, there are steps you can take to protect your business from B2B check fraud. Here are a few best practices for preventing check fraud:

• Take outgoing mail containing checks straight to the post office instead of putting it in your mailbox. And retrieve mail from your mailbox promptly every day.
• Do not accept any overpayment for goods or services. Also, make sure checks have cleared before issuing any customer refunds.
• Keep your business checkbook secure, preferably under lock and key. Order checks directly from your bank and only get as many as are needed for the short term so you don’t have lots of extra check stock on hand.
• Fill out checks completely by writing out the numeric value, full name of the recipient, date and a descriptive note at the bottom. And draw a line at the end of every space to prevent thieves from writing an extra zero or adding a recipient.
• Destroy checks once you’ve deposited them. If you use remote deposit services, shred checks once they have posted to your account so thieves can’t retrieve them from your trash and steal sensitive account information.
• Use check fraud tools from your bank. For example, Positive Pay compares check images provided by your business to checks presented for payment to ensure a match. Any suspicious items are presented to you for a pay or no-pay decision.
• Use EFT instead of writing checks. Perhaps the best defense against check fraud is to simply write as few checks as possible. Instead, pay vendors using electronic funds transfer (EFT) and the Automated Clearing House (ACH).

How Capital Bank Can Help

Capital Bank offers Positive Pay services that help guard against check fraud at the teller line and daily clearing. Potentially fraudulent checks are intercepted before funds are drawn on your bank account to verify and authenticate that the check was issued by your business.

To learn more about Positive Pay and other fraud prevention tools, visit us online or contact your relationship manager.
Sources:

¹ FinCEN Alert on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail
² How to help protect your business from check fraud

Posted: January 11, 2024

Picture this, you’re on a cross-country road trip. There are going to be pit stops, roadside attractions, maybe a few speed bumps, and definitely some amazing sights along the way. Just like a road trip, the journey of a business is not a straightforward drive. Instead, it unfolds in stages – each with its unique challenges and opportunities.

So, buckle up, because we’re about to go on a journey through the four stages of a business and the must-knows at each stop.

1. Startup Stage: Dream It, Do It!

This is where your journey begins – the start of something exciting and new. At this point, you’ve got a business idea that you believe in and are ready to put it into action.

What to think about: Is there a market need for your product or service? How will you differentiate your business from competitors? A business plan is your best friend here. Use it to detail your business objectives, strategies, market research, and financial forecasts. And remember, brace yourself for challenges – starting a business is never a cakewalk.

2. Growth Stage: Fasten Your Seatbelts, It’s Going to Be a Wild Ride!

Congratulations! Your business is gaining traction, revenues are increasing, and you may even be considering expansion. This stage is thrilling, but the pace can be overwhelming.

What to think about: How can you manage this growth sustainably? Are there processes or technologies that can help you scale effectively? Now might be the time to invest in more robust systems or hire additional personnel to handle increased demand. But remember to grow smart – don’t outrun your headlights.

3. Established Stage: Cruise Control Engaged

You’ve made it! Your business is well-established with a stable customer base and regular profits. Things seem to be running smoothly. You may be tempted to just enjoy the ride, but this isn’t the time to take your foot off the gas.

What to think about: How can you continue to innovate and stay relevant? What are your long-term goals? Consider exploring new markets, diversifying your offerings, or fine-tuning your business model. Staying complacent could lead you off the road, so always aim to keep moving forward.

4. Expansion or Exit Stage: Crossroads Ahead

You’re at a critical juncture. Here, you might decide to expand further, maybe even go global. Or you might choose to sell the business or pass it on to the next generation.

What to think about: What’s the best path for your business? If you’re thinking of expanding, do thorough market research to identify potential opportunities. If an exit is on your mind, consider seeking professional advice to get the best possible outcome. Either way, this stage requires thoughtful consideration and planning.

So there you have it – the roadmap for your business journey. Remember, every business is unique, and you might not fit perfectly into these stages. But that’s okay, it’s YOUR journey after all! Just keep your eyes on the road, your hands on the wheel, and remember to enjoy the ride. After all, it’s not just about the destination; it’s about the journey too!