It's nice to be wanted.
Large commercial banks have decided that public accounting firms, despite their typically modest borrowing needs, are highly desirable customers. They have several reasons for coming to this conclusion:
CPA firms can be a good source of referral business from their clients;
A CPA firm's partners and senior managers may be likely to switch their personal banking arrangements to the bank that handles the firm's business;
CPA firms have, in the words of one banker, "not gone through the trauma" that many law firms have, as symbolized by the recent spectacular bankruptcy filing of Dewey & LeBoeuf; and,
Small CPA firms may fit into a bank's larger push to expand their commitment to small business in general. ("Small" may include firms with up to $20 million in revenue, based on Small Business Administration criteria.)
The upshot of all this is the emergence of a marketing push to capture CPA business with packages of banking services deemed to be custom-tailored to the needs of public accounting firms.
Whether this marketing effort will deliver any genuinely new services and economic benefits to accountants and CPAs will vary from one bank to the next -- but the attention may be welcome.
DEDICATED TEAM FOR CPAS
Bank of America, for example, proclaimed a "new milestone" in 2012 when it extended a practice acquisition financing service originally focused on medical professionals to CPAs. The bank reports that it has a "dedicated team of specialists who focus solely on providing financial solutions for the CPA accounting and tax markets" throughout the country.
Citibank, meanwhile, came out with its dedicated CPA package ("CitiBusiness Solutions for Accounting Professionals") last year "because we saw the value of this customer group. It's extremely important to Citi," said Maria Veltre, a managing director at Citi who heads up the bank's small business unit.
"We have looked at this space and love it," proclaimed Jay DesMarteau, who holds an equivalent position at TD Bank, which operates about 1,350 "stores" (the term preferred to "branches," with its "stodgy" image, according to DesMarteau) on the East Coast. TD expects to formalize its marketing program and service package for public accounting firms by the end of the year.
One way that TD Bank expects to express its love for the public accounting field is to follow the approach it has recently taken with medical practices in making practice purchase lending decisions based on the practice's business valuation, instead of the strength of its collateral. "Collateral coverage never looks that good" with professional practices, DesMarteau conceded.
TD Bank now offers medical professionals 100 percent financing on 10-year term practice acquisition loans, although it might not offer those precise terms to CPA firms.
For its part, Citibank offers an "automatic second look" if prospective borrowers initially don't make the grade according to standard credit criteria, and has a "robust" process for assessing creditworthiness, according to Veltre.
SMALL BUSINESS PUSH
Earlier this year Citibank declared its intention of expanding lending to small businesses based on a "fundamental goal" to "create economic value and support progress."
Beyond the generalities, Citibank has determined, through customer surveys, that what matters most to many accounting firms is cash management, Veltre says. Sophisticated technology-based cash management solutions being offered to CPA firms (not to mention all other business clients) include remote check deposit, credit/debit card merchant services, payroll systems, and the panoply of online banking services that have become a staple of the banking industry in recent years.
The pitch to CPA firms is preferred pricing arrangements, including waived fees and low (or zero) account balance requirements.
A cash flow challenge for many CPA firms (especially those that do a lot of tax work) -- which banks report they are eager to help solve -- involves the cash gap between the period in December or January when bonuses are paid out to partners, and the spring months when clients pay for tax preparation services. "We do a lot of lines of credit" for such firms, said Gary Gilbert, executive vice president and senior business loan manager for BB&T, a Southeastern regional bank with operations in 12 states.
CASH MANAGEMENT SERVICES
Debt consolidation -- perhaps more of a working capital optimization exercise than a cash management function -- is a need among some CPA firms that Bank of America is willing to perform. The bank says that it will finance up to 70 percent of a practice's revenue for that purpose, with terms as long as 10 years, "with flexible principal reduction and early payoff options."
A common borrowing need of CPAs -- not the firm itself -- involves financing a partnership interest when the accountant is invited to become a partner. Union Bank's "capital contribution buy-in program," according to David Jochim, a senior vice president and director of the bank's professional business services unit within its private bank group, allows new partners to finance 100 percent of their purchase for terms up to five years, without collateral, priced at prime. While these are personal loans to individual borrowers, this loan program applies to partners of accounting firms that have an existing relationship with Union Bank.
Equipment financing is another, perhaps more routine, credit need that banks are anxious to provide. Bank of America's offering in this area, under its "Practice Solutions" service package, for example, features fixed-rate loans from $10,000 to $75,000 for up to seven years, with no application or documentation fees.
BB&T, which folds leasehold improvements under the same umbrella as equipment financing, tries to tie the loan term to the relevant amortization schedule for the items being financed. That means the purchase of an office's worth of desks might be financed over 10 years, whereas a standard computer might require a much shorter loan term, Gilbert said.
COMMERCIAL MORTGAGES
One banking service for accounting firms that seems to garner more interest, at least among some bankers, is commercial real estate mortgages. "We are focused on owner-occupied commercial real estate," said Gilbert.
He is one-upped in enthusiasm by Union Bank's Jochim: "We love commercial real estate," he said. Union operates in California, Oregon and Washington State.
A typical Union Bank mortgage will feature a 15-year term and a 15-year amortization schedule, he said, but the bank also will lend with a 10-year term and a 25-year amortization schedule. Loans generally will be up to 65 percent or 70 percent of the property's appraised value.
Current demand for commercial mortgages from accounting and CPA firms doesn't necessarily match banks' interest in making such loans. "We are seeing an increasing trend towards owner-occupied commercial real estate, but I wouldn't say it's dramatic," noted Citibank's Veltre.
In BB&T's experience, office mortgages are typically granted to a partnership entity consisting of the accounting firm's partners, which in turn leases the property to the accounting business. In that scenario, the bank bases loan terms on the personal balance sheets of the partners, more than the appraised value of the real estate itself.
In its push to attract CPA firm accounts, Bank of America's small-firm-oriented Practice Solutions unit is offering commercial loans up to $5 million with a six-month payment holiday and a year of interest-only payments to defer the brunt of the monthly financial obligation.
That unit of Bank of America offers similar terms -- but generally with a lower, $750,000 borrowing ceiling -- to assist in the purchase of an accounting practice. "We have customized loan amounts that provide up to 70 percent financing for a practice owner or 50 percent if someone is a first-time business owner," according to Justin Schafer, BoA's regional business development officer for the Practice Solutions unit.
PERSONAL BANKING PERKS
Because banks consider accounting firms a good referral source, they often are willing to give partners favorable terms on personal banking services, perhaps to encourage them to give those services a test drive. For example, Union Bank's personal private bank, featuring trust, wealth management and related services, ordinarily requires a minimum of $1 million of investable assets. But a "courtesy inclusion" policy gives CPA firm partners whose firms have a business relationship with the bank access to the private banking services without satisfying that $1 million threshold.
This suggests that in shopping for banking services for their firms, CPAs might also consider in the overall decision-making process personal banking services that they might consider attractive that they might otherwise not have access to.
In addition, just as banks are hoping for referrals of CPA firm partners and firm clients to the bank, banks should be evaluated for their potential to refer banking clients to the CPA firm itself. "We tend to do a lot of business back and forth," said DesMarteau.
He suggests that CPAs ask banks about the nature of their clientele, and look for areas of overlap with the CPA firm's client development priorities.
