June 20, 2013
In support of National Small Business Week, the National Association of Credit Management (NACM) released a fact sheet today offering the nation's small businesses a quick reference document on commercial credit reporting. The free fact sheet, titled "Commercial Credit Reporting: What Every Company Needs to Know," provides the smallest of the nation's firms with the information they need to be able to manage their own company's commercial credit profile.
A number of small companies only rely on the owner's personal consumer credit to operate the business. They may not be aware of, or know enough about commercial credit and commercial credit reporting to establish and build a strong commercial credit profile, which can help these businesses acquire better bank financing and the crucial goods and services needed from other trade suppliers on an unsecured basis. "NACM hopes the fact sheet will help companies build their credit and support their financial practices," said NACM President Robin Schauseil, CAE. "It is imperative to eliminate any misconceptions and educate companies about commercial credit and commercial credit reports, especially among small businesses, the drivers of the nation's economy."
NACM began to develop the fact sheet earlier this year in response to reports from its membership and certain state legislators that many small businesses were falling prey to aggressive sales tactics from commercial credit monitoring services. Salespeople from some of the companies that provide such services have called small- and micro-business owners and unwittingly fooled them into believing that they needed to pay for a product that would improve and address errors in their company's commercial credit report.
"Much like in the consumer credit world, companies have the right to view and address discrepancies in their credit report for free," said Schauseil. "More than that, they have the right to not be taken advantage of by unscrupulous salespeople trying to scare up business by making false claims."
"Any company, no matter how small, will have the knowledge necessary to avoid getting snared by these offers if they are armed with the information included in the 'Commercial Credit Reporting: What Every Company Needs to Know' fact sheet. They will also have the knowledge to find and view their company's commercial credit report and use that information to build their credit, along with their business," she added.
"NACM was founded more than a century ago to protect the free and open exchange of credit information between businesses," said NACM National Chairman Toni Drake, CCE. "Educating the nation's businesses about the important things that differentiate consumer credit from commercial credit is one of the association's chief priorities, and that tradition continues today with the 'Commercial Credit Reporting' fact sheet."
The full fact sheet, in PDF format, can be downloaded for free here. For more resources on the importance of recognizing the differences between consumer and commercial credit, please contact NACM at 410-740-5560.
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Detroit defaulted on a $39.7 million debt payment last Friday, June 14, but the move was all part of the city's restructuring plan, put forth last week by Emergency Manager Kevyn Orr.
In an effort to save cash, Orr's plan has the city set to miss payments on billions in unsecured municipal debt. Friday's default was only just the beginning. Should Orr's plan make its way, intact, through what are expected to be tough negotiations with creditors of all classes, unsecured creditors will end up taking a pro rata share of $2 billion worth of non-recourse participation notes, payable as the city's financial situation improves. These would be issued by Detroit to replace $11 billion worth of unsecured obligations consisting of bond debt, pension certificates, the pensions' underfunding claims and retiree health care claims.
Orr stressed sustainability in his announcement of the city's latest effort to avoid filing Chapter 9 bankruptcy. "The city and its creditors and constituents will have worked too hard and sacrificed too much for the gains of the restructuring to go for naught," he said. "We will need an oversight structure to ensure that the tough decisions and the compromises we make today are sustainable and allow Detroit to become a vibrant and growing American city once again."
But the severity of the cut proposed for creditors has many thinking they'd be better off in bankruptcy. For his part, Orr has said that he would prefer to avoid filing Chapter 9, but pegged the city's chances of a successful out-of-court workout at 50-50.
Ratings agencies reacted to Detroit's default with further downgrades of the city's already beleaguered debt quality. Standard & Poor's (S&P) cut Detroit to CC from CCC-, while maintaining a negative outlook on the city's potential bankruptcy filing. Moody's downgraded several classes of Detroit debt to Caa2 with a negative outlook while acknowledging the boldness of Orr's plan. "The structuring plan is unconventional and precedent-setting in the municipal market," said Moody's in a statement. "It builds a strong case for insolvency, girding the city for a tough fight with creditors of all types."
Several observers have noted that the actions Detroit takes to dig its way out of a $17 billion hole will ripple through the world of municipal bankruptcy. Bruce Nathan, Esq., partner at Lowenstein Sandler LLP, predicted at last month's Credit Congress that a Chapter 9 filing by a tier-one, household-name city like Detroit would be huge news for other municipalities on the brink of their own filing. Similarly, the reception of Orr's controversial restructuring plan will be a bellwether for other like efforts by cities and towns to scrape by without having to file.
- Jacob Barron, CICP, NACM staff writer
NACM National Trade Credit Report—By NACM Members, for NACM Members
When it comes to providing businesses with factual, accurate and relevant information, the NACM National Trade Credit Report is the right choice. NACM National Trade Credit Reports include trade payment data, days beyond terms, and fresh, robust and timely business information.
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An article in the Summer 2013 edition of the American Bankruptcy Institute Law Review argues that policymakers should simplify the definition of a "small business debtor" in bankruptcy.
In her article, "An Argument for Simplifying the Code's 'Small Business Debtor' Definition," Professor Anne Lawton of the Michigan State University College of Law recommends eliminating all but two criteria—formation of an official creditors' committee and size of a debtor's liabilities—from the current definition. "A complex and ambiguous definition, like the one adopted by Congress, increases the possibility of confusion and litigation, which delay debtor identification and increase costs," said Lawton.
Small businesses have historically performed poorly in Chapter 11, with cases languishing while administrative costs piled up and a debtor's chances for a successful exit dwindled. Congress enacted reforms in 1994 and again in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that required increased reporting by and monitoring of small business debtors. These reforms also extended time requirements for plan proposal and confirmation.
Still, the Code's current definition of a small business debtor diverts time that could be spent on plan negotiation and debtor evaluation to threshold questions about the applicability of small business provisions. Lawton argues that the calculation of a debtor's liabilities to determine whether they exceed the current $2,490,925 cutoff should be amended to eliminate the requirement that "contingent," "unliquidated," "affiliate" and "insider debt" be deducted.
"Debtor liabilities predict plan success regardless of whether liability totals include or exclude contingent, unliquidated, affiliate and insider debt," said Lawton, noting that the simplified definition would better predict both plan confirmation and successful plan performance. "The modified definition not only simplifies the task of sorting small from non-small businesses, but it also makes the sorting process less reliant on judicial interpretation and more [reliant] on objectively verifiable facts."
- Jacob Barron, CICP, NACM staff writer
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The U.S. Senate Committee on Small Business and Entrepreneurship approved a quartet of bills on June 17, all of them designed to increase small businesses' access to capital.
Specifically, the committee approved S. 511, the Expanding Access to Capital for Entrepreneurial Leaders (EXCEL) Act, S. 289, the Commercial Real Estate and Economic Development (CREED) Act, the Communicating Lender Economic Activity Records from the Small Business Administration (CLEAR SBA) Act, and S. 415, the Small Business Disaster Reform Act.
Each bill aims to loosen a persistent logjam in credit access for small businesses. According to a poll released this week by the American Sustainable Business Council (ASBC) and the California Association for Micro Enterprise Opportunity (CAMEO), almost half (47%) of small business owners say that access to credit is currently a problem for their business. "It's a very serious problem for the economy that almost half of very small businesses still face a credit crunch five years after the financial crisis," said Richard Eidlin, director for public policy at ASBC.
Most notably, the EXCEL Act would modify the Small Business Investment Company (SBIC) program to raise the amount of SBIC debt that the Small Business Administration (SBA) can guarantee from $3 billion to $4 billion. It would also increase, from $225 million to $350 million, the amount of SBA-guaranteed debt a team of SBIC fund managers can collectively borrow. The SBIC program licenses investment firms that use their own private money, along with money guaranteed by the SBA, to invest in small businesses, typically borrowing $2 of SBA-guaranteed funds for every $1 of private capital. Since 1958, SBICs have invested $56 billion in more than 100,000 small businesses, including Apple, FedEx, Callaway Golf, Jenny Craig and Outback Steakhouse when they were all small businesses.
The CREED Act would extend a provision allowing small business owners to use SBA 504 loans to refinance certain existing commercial mortgages for five years; the CLEAR SBA Act would require the SBA to establish a searchable online database to provide small businesses and local, state and federal policymakers with up-to-date, user-friendly data about SBA lending; and S. 415 would create two no-cost disaster reforms that have enjoyed broad bipartisan support in prior Congresses.
"When I talk to small business owners in Louisiana and across the country, one of the things I hear most is that access to capital is still a significant challenge," said Small Business Committee Chair Sen. Mary Landrieu (D-LA). "It is only appropriate that our committee kicked off the 50th National Small Business Week by passing common-sense bills that will help small businesses grow and create jobs. I urge my colleagues to move forward on passing them through the full Congress as quickly as possible."
- Jacob Barron, CICP, NACM staff writer
Good Behavior Rewarded
Your company’s good corporate behavior is worth participation points on the NACM Career Roadmap and toward CCE Recertification! Credential holders are rewarded for their company’s contribution of their A/R data to an NACM Affiliate credit reporting database. A member of a company that contributes full A/R data to an NACM Affiliate credit reporting database may claim one point per year on the Career Roadmap and 0.25 points per year on the Recertification Report.
Contact the NACM Education Department at firstname.lastname@example.org with any questions.
The U.S. and European Union will launch negotiations over the previously proposed Transatlantic Trade and Investment Partnership (TTIP) in July.
In a joint statement made this week by U.S. President Barack Obama, European Commission President José Manuel Barroso and European Council President Herman Van Rompuy, the U.S. and EU announced that the first round of TTIP negotiations would take place in Washington, DC during the week of July 8, under leadership of the Office of the U.S. Trade Representative. The goal of the negotiations will be to eliminate nearly all barriers to trade between the U.S. and EU, further opening what's already the world's largest investment relationship, with the two entities maintaining a total of nearly $3.7 trillion in investment in each other's economies as of 2011.
The Obama Administration previously notified Congress of its intent to pursue negotiations on the TTIP in March. Originally teased in the President's State of the Union address in February, a successful agreement could provide a notable economic boost to both the U.S. and EU. As the economic volume exchanged between the two is so extensive, any marginal increase could present a windfall for trade on both sides of the Atlantic.
"A high-standard free trade agreement between the U.S. and EU could be a significant, long-term boost for our economy," said Senate Finance Committee Chairman Max Baucus (D-MT), whose jurisdiction includes international trade. "With the world more competitive than ever, we need to seize every opportunity we have to spark faster growth and create jobs here at home."
While lawmakers in both the Senate and House of Representatives applauded the Administration's announcement, they also noted that chief among the priorities of the TTIP should be addressing what many consider to be the EU's long-standing barriers to U.S. agricultural exports. Many echoed the concerns of Rep. Devin Nunes (R-CA), trade subcommittee chairman in the House Ways and Means Committee, when this week he described the EU's agriculture regulatory system as "opaque and inefficient" and non-reliant on "sound science-based standards."
- Jacob Barron, CICP, NACM staff writer
Do You Know the Law?
The Manual of Credit and Commercial Laws, Volume III: Construction Issues is new for 2013. Language and state laws have been updated throughout the entire volume including:
- Chapter on Personal Property Liens
- Chapter on Trust Funds
- Chapters on Liens and Bonds
The entire volume has been updated to reflect the liens, bonds and trust funds applicable to the 21st century!
Watch for future updates of volumes I, II and IV.
Click here to purchase volume III and get more information about the wide array of resources available to today's credit professionals.
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