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Credit & Lending

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A tale of two cities:

 

My pal Jeff in New York wanted to make a documentary film but didn’t have enough money to fund the project. He had heard about crowdfunding and decided to give it a shot. He made a quick video about his movie and put it up on Kickstarter. Jeff said to me, “I figure people will definitely donate the money I need if I give them an Associate Producer credit”.

 

A colleague of mine, Jonah, wanted to launch a food truck in Portland, Oregon. He also opted to crowdfund his idea with Kickstarter, but was much more methodical about it. Yes, he created a solid video, but he also cultivated a great list of people to pitch to once he launched his campaign. He also thought very strategically about the rewards people would get, and created tiers that made sense. He put three months into his campaign before he even posted it on Kickstarter, and even then, as he told me later, “I worked it. I treated it like a marketing campaign.”

Guess which entrepreneur met his funding goal? You guessed it – Jonah.

 

So yes, there is a right way and a wrong way to go about crowdfunding the dream. Here are the dos and don’ts:

 

THE DO’S:

 

Do have a concrete, focused product/solution to a problem: It should be no surprise that people will be much more likely to invest their time and money into something that they see solves a problem, especially if it is a problem that they personally have. Potential backers will stay away if your vision is too muddled or abstract.

 

As such, you need to be sure that your product or service is simple, clear, focused and logical. You are also more likely to be successful if the problem you are attempting to solve is fairly ubiquitous.

 

And for the record, physical objects, and games, have the highest rate of success on Kickstarter, whereas documentaries, shorts, and music are by far most likely to fail.

 

Do know who your product is for, and market to them before launching: Jonah intuitively had the right idea. Thoroughness and forethought are needed throughout every phase of your campaign, but especially before launching. Prior to the launch, you should be

doing plenty of marketing to your tribe and target audience via email and social media – regularly sharing ideas, prototypes, sketches, your mission, etc. Remind your audience over and over again about your great solution to this problem so that they become familiar with it.

Getting your audience excited ahead of time and wanting to be a part of your solution is what works.

 

Have other sources of income: Kickstarter pledges should not be your only source of funding. There are several reasons for this:

  • Backers will want to see that you have skin in the game
  • Also, you need capital to run a campaign – to make prototypes, videos, for marketing, and to handle unexpected road blocks or changes of plan Steve-Strauss--in-article-Medium.png

 

Your Kickstarter funds should be going toward manufacturing and distribution, while your own money should be for things like paying office rent, etc.

 

Click here to read more articles from small business expert Steve Strauss

 

THE DON’T’S:

 

Don’t set your funding goal too high: A lot of Kickstarter campaigns make the #1 mistake of setting their funding goal much too high, thinking that it reflects their drive and passion. Yes, you should be proud of that drive, but your funding goal needs to be more strategic and realistic.

 

Your Kickstarter goal should reflect your actual funding needs, and should be an amount that you feel you can reach. People feel much more confident investing in something that looks like it’s already winning, so if your page reads “200% of goal,” you are sure to attract more potential backers.

 

For reference, the median funding goal for the top one thousand most successful Kickstarter campaigns is $1,000.00, whereas most campaigns set a goal of $5,000.00 or more

 

Don’t make your campaign a second or third priority: This project should be your first priority, and you and each team member should be spending enough time ensuring its success. People are not just going to give you money because you posted a cool video on Kickstarter; that’s not how it works.

 

Perhaps the most crucial element of this is prioritizing your backers and potential backers. If you do your campaign right, your inbox will be overflowing with questions and introductions. You need to promptly respond to those queries in a personal, informative, and transparent manner. Give folks regular updates. Get your rewards out the door on time. Respond to requests for additional info.

 

The key here is to act in such a way that backers will want to take a chance on your vision. Do that, and they will help you, well, kick start the dream.

 

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Bank of America, N.A. Member FDIC.  ©2017 Bank of America Corporation

One of the biggest issues facing entrepreneurs is how to fund their businesses, particularly in the early stages of growth. This leads many to consider venture capital. However, the process is not easy.

 

Here are five things your business should do before talking with a VC.

 

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1.     Make sure your business is VC-fundable

 

While venture capital gets a lot of space in the press, it only funds a fraction of a percent of businesses each year. Venture capitalists (and the “angel investors” that precede them) are looking for big, scalable opportunities. So, depending on the industry, if your business isn’t going to get to at least $50-$100 million or more in the next 3-5 years, don’t be surprised if the venture capitalist doesn’t want to talk to you.

 

This is also why VCs tend to disproportionately fund industries like tech and biotech. For industries focused on the consumer, they tend to come into the funding cycle later in the process.

 

2.     Refine your business plan and deck

 

While your business plan or pitch deck won’t alone get you funded, it acts much like a resume does in a job interview – it helps get you to the next level. Make sure you can clearly explain what problem your business is solving and why your team is the best suited to solve the problem. Clearly communicate your business model and why your approach is better than the competition (whether direct competition, indirect competition or competition that may come down the road). Address and overcome the key objections an investor is likely to have. Explain the milestones you have achieved, what you will achieve with your capital infusion and the scope of the ultimate opportunity. 

 

Doing this slickly and concisely, with graphs, charts and bullets is the current trend for frequently approached investors with short attention spans.

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3.     Get an introduction

 

If you want to ensure your business plan is never seen, send it in over-the-transom without any introduction. Seriously speaking, having an introduction from someone connected to your targeted VCs who can vouch for your team exponentially increases your chance of being seriously evaluated. 

 

Try your business banker, lawyer, accountant, circle of friends and other VCs to make those key connections. It will make a world of difference.

 

Click here to read more from small business expert Carol Roth.

 

4.     Enhance your team

 

At the end of the day, most venture capitalists are betting on the entrepreneurs. Using a racing analogy, if you are going to put money on a race, you bet on the driver first, then the car they are driving. If you are missing key experience or credentials that make you a credible team to pull off your plan and grow the company at warp-speed, fill in the team first so a VC will be willing to make a bet you can execute on your plan.

 

5.     Take the risk out

 

While venture capital is often referred to as risk capital, the reality is that those investors don’t like to take risk. So, the more you can do to eliminate execution risk, the better chance you have of finding funding.

 

This means you should advance your intellectual property, sign up customers and build out your business as much as you possibly can before asking for a big chunk of cash.

 

Frankly, if you go out and are really killing it early on, the venture capitalists will come to you.

 

About Carol Roth: Carol Roth is the creator of the Future File™ legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including host of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness. 

 

Web: www.CarolRoth.com or Twitter: @CarolJSRoth

 

Bank of America, N.A. engages with Carol Roth to provide informational materials for your discussion or review purposes only. Carol Roth is a registered trademark, used pursuant to license. The third parties within articles are used under license from Carol Roth. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Bank of America, N.A. Member FDIC.  ©2016 Bank of America Corporation

When Warren Buffet was first starting out in business as an investor, naturally, he needed funds to invest. Like many small business people, he turned to friends and family to get his stake. Specifically, six close relatives and a college roommate helped Buffet get started.

 

Among those believing and investing in the young man was Buffet’s Aunt Katie. Over several installments during those early years, Aunt Katie eventually invested about $20,000 with her nephew. In an interview with Fox Business on the occasion of his 50th anniversary in business, Buffet was asked what Aunt Katie’s investment was worth when she passed away,

 

“Oh, probably a couple of hundred million dollars,” replied Buffet.

 

Similar to Warren Buffet, Richard Branson was also given an early assist by an older relative, in his case, his mother. Branson says that when he was 16 he wanted to start a magazineSteve-Strauss--in-article-Medium.png to give the youth in Great Britain a voice, especially given the war in Vietnam. The problem was that he had no money and neither did his family.

 

It was fortuitous that around this time his mother found a bracelet on the street. She turned it into the police as a lost item. Two months later, when it still had not been claimed, the police said it was legally hers to keep. Wanting to support her son’s dream, Branson’s mother sold the bracelet for $200 and gave it to him, which he used to start the magazine (and what would eventually become The Virgin Group).

 

Click here to read more articles from small business expert Steve Strauss

 

While the story of family and friends helping entrepreneurs is not an unfamiliar one, it still is interesting. It turns out that more often than not, small business owners turn to their extended tribe to get help with launching and growing their businesses.

 

This fact is borne out by the latest Bank of America Small Business Owner Report. The Report is a bi-annual survey commissioned by Bank of America that looks at the views and aspirations of small business owners. While this fall’s Small Business Owner Report examined, among other things, economic confidence and hiring trends, it also surveyed the extent to which small business owners rely on friends, family, and community in their businesses.

 

It turns out that they do, a lot. Consider these interesting statistics from the survey:

 

  • More than half of those surveyed (53%) rely on family to serve important roles in their business (advisers, employees, investors, partners, etc.)
  • More than one-third (38%) have received financial gifts or loans from family and/or friends to fund their business
  • Nearly two-thirds (62%) report that residents in their community actively shop at small businesses

 

Sharon Miller, Managing Director and Head of Small Business for Bank of America says,

 

“For this report we looked closely at the roles that family, friends and communities play in supporting small business owners. The vast majority of entrepreneurs depend on their family for emotional, operational and/or financial assistance, and more than one-third have at some point received financial support from family and/or friends to fund their business . . . while nearly half say the local community plays an important role in the success of their own individual enterprise.”

 

There is a view out there that entrepreneurs are iconoclastic lone wolves; that they are this unique breed of individual who can buck a trend and head off in an uncharted, unique direction that only he or she can see.

 

That is a misconception.

 

What we see from this latest Small Business Owner Report is just the opposite. Oh sure, entrepreneurs have to have a vision – whether it’s creating an investment firm or a student-run magazine or launching a dry cleaner – but the fact is, they can’t and don’t do it alone, and they don’t want to.

 

Whether it is enlisting relatives to invest in the dream or hiring their kids to clean the shop or recruiting elders to act as advisors, the fact remains that entrepreneurs weave together a rich tapestry of people in order to create businesses that serve us all.

 

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Bank of America, N.A. Member FDIC.  ©2016 Bank of America Corporation

If getting credit for your small business is proving to be an uphill climb, you may want to look into a secured credit card. Not only can it help you build or reestablish the credit you need now, but also possibly provide a stepping stone toward an unsecured credit card or bank loan in the future.

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Click here to download a PDF of this infographic.

How to repair business credit When it comes to your small business, better credit could mean bigger possibilities. Improving your company’s credit score — and in some cases, repairing it — could help you take full advantage of opportunities that may fuel your business growth.

 

Learn the ins and outs of building a solid foundation of good business credit with our new guide.

 

Click here to download the guide "Eight Ways to Maintain and Repair Good Business Credit" (PDF).

Now that you’ve gotten familiar with the loan choices the SBA offers with, you may be ready to apply. Here, we give you a step-by-step checklist of everything you need to do to complete and present the necessary paperwork and cover all your bases.

 

You can also read Part 1: "An Overview of  SBA Loans" here and Part 2: "Types of SBA Loans" here.

 

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Click here to download a PDF version of this infographic.

Need a loan? Consider one from the Small Business Administration. In our three-part series, you can explore all your SBA options to make a more informed decision and get the loan that fits your business needs best.

 

SBA-Loans-Overview-Thumb.gifPart 1 provides an overview of what SBA loans are and how they can benefit your business. You can read about the different types of SBA loans in Part 2 by clicking here.

 

Click here to download the SBA Loans Overview guide (PDF).

There are several types of loans available from the Small Business Administration. In part 2 of our 3 part series, discover all the loan choices at your fingertips, so you can do your due diligence and select the one that’s perfect for your business.  You can also read Part 1: "An Overview of  SBA Loans" by clicking here.

 

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Click here to download a PDF version of this infographic.

 


 

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Watch the video below to see a brief comparison of the different lending products and features, to help you understand how credit options can support every stage of your business journey.

 

SBC Team

The 5 Cs of Business Credit

Posted by SBC Team Jul 12, 2016

When it comes time to secure financing for your small business, it’s important to know going in what lenders are looking for. And while it’s true that many lenders have their own unique underwriting requirements, most follow “The 5 Cs.”

 

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Click here to download a PDF of this content.

Better credit means bigger possibilities. Improving your company’s credit score can help you take full advantage of the opportunities that arise as your business grows.  Learn the ins and outs of building a solid foundation of good credit history with our infographic, Building Credit for Your Small Business.

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Click here to download a PDF version of this infographic.

Inc-Article-Logo.gifFor small business owners, strong personal credit is essential to obtaining business credit, so keep tabs on your credit score and clean up any errors

 

Most consumers know that their ability to borrow money is heavily influenced by their credit score, but maintaining a high score (and staying abreast of changes in how scores are determined) is even more critical for entrepreneurs, who often don’t know that their ability to borrow for their business is linked directly to their personal credit. While credit scores can seem like a black box, there are steps that business owners can take to monitor and potentially improve their credit scores.

 

“Credit scores are a dynamic interpretation of several conditions around consumers’ performance and access to credit, and those are subject to change and adjustment at the whim of FICO,” says Charles Green, managing director of the Small Business Finance Institute and author of Banker’s Guide to New Small Business Finance (Wiley Finance, 2014).

 

A prime example is FICO’s launch of FICO Score 9 in 2014, a revised formula that excluded medical debt. Entrepreneurs with outstanding medical bills could see their credit scores rise by 25 points under this new formula, which could make their applications for business loans more credit-worthy.

 

Credit scores depend on a number of factors, including a consumer’s past record of payment, how much of available credit a consumer uses and borrowing patterns, Green says. Borrowing patterns include how many credit applications you file in a given period and are weighed based on how many applications are made in a specific period of time.

 

It’s also important to understand how the various factors that tie into a credit score are weighed. For example, FICO weighs revolving credit such as credit cards more heavily than term loans such as mortgages, car loans, and student loans in their scoring methodology, according to Green.

 

Because growing businesses often struggle to maintain predictable (and sufficient) cash flow, it can be extremely advantageous to maintain a high credit score so that business credit can be accessed at favorable terms when needed. Toward that end, Green notes that the bottom line in maintaining a clean credit report and high credit score involves:

 

  • Monitoring your credit report regularly by requesting a free copy annually from all three major sources (Equifax, Experian, and TransUnion), and obtain an additional copy just before applying for any type of credit, especially business credit.
  • Fixing any mistakes by reporting them in writing to the credit bureaus, who must then investigate the issue and confirm the erroneous information with the source.
  • Making all credit card, mortgage, and loan payments on time.
  • Moderating your borrowing and maintaining lower balances on revolving credit accounts.

 

  • Employing a strategic approach toward credit card use, including how many cards you have and closing out unused cards properly. (Keep a hard-copy of correspondence with credit card issuers verifying that the account had a zero balance and was in good standing at the time it was closed.)

 

By maintaining a clean personal credit report and monitoring that report regularly, you’ll ensure that you have the highest personal credit score possible, which can prove to be one of your business’s most precious assets.



 

Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC.

 

©2015 Bank of America Corporation

Inc.

How to Assess New Lending Sources

Posted by Inc. Sep 24, 2015

Inc-Article-Logo.gifAs the universe of available financing options expands, small business owners need to do their homework.

 

At the peak of the Great recession many small business owners worried that they had no lending options at all. How things change. Today not only are traditional lenders ready to provide financing, but so too are a wide variety of nontraditional sources.

 

But all those choices don't necessarily make borrowing easier. To make the smartest choice for your company you'll need to invest some time in assessing the pros and cons of each option before signing on the dotted line.

 

“Before taking out a loan, the small business owner should thoroughly understand why they need the money and what their options are in terms of getting that financing,” says Steve Milan, a partner with Fuse Financial Partners in Charlotte, NC. “There are a great many sources of alternative financing, but the terms can be very confusing and may ultimately be quite expensive.”

 

Who's Lending to Whom, and Why?

 

As more investors enter the lending market in pursuit of higher returns, alternative lending sources are increasing rapidly. Here are a few of the much-talked-about options that you may want to explore:

 

  • Microloans: Small Business Administration Loans ranging up to $50,000.
  • Crowdfunding: Through online platforms, business can raise money for the development and/or launch of new products and services.
  • Peer-to-Peer lending: Pairs investors with business owners in need of capital.
  • Merchant Cash Advances: Advances funds based on future debit and credit card receivables.
  • Factoring: Loans made on outstanding invoices.
  • Asset-based lending: Loans based on assets such as inventory or accounts receivables.

 

For the most part, alternative lenders make loans based either on assets or cash flow, Milan says. The major advantages of alternative financing is that it makes available funds for businesses that don’t have the track record, assets, or cash flow to qualify for a traditional bank loan. The major disadvantages are the fees and interest rates.

 

“There’s financing available for small business owners who need it,” Milan says. "The trick is that such financing is confusing and expensive. The terms can be difficult to figure out because of the combination of interest rates and fees.”

 

When evaluating financing options, take a hard look at the interest rate and make sure you have a full understanding of all fees. Think about how much the loan will cost you in total so you can decide whether it's a wise move. Also keep in mind that the time from when you apply for a loan to when you receive the money can vary by type of loan source and the individual lender.

 

Milan notes that rates and fees vary widely. Peer-to-peer lending rates, for example, run from 5.9 percent to 36 percent annually. Asset-based loans tend to end up in the low teens once you combine the interest rate and fees.

 

"It makes sense for small business owners to consider alternative lending anytime they need financing but a traditional bank loan is not the best option," Milan concludes. “The first step is to consider why the financing is needed and then conduct a profitability and cash analysis. Once the small business owner knows what types of financing are available, then it’s time to compare costs and terms and decide which route to pursue.”

 

 

 

 

 

Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC.

 

©2015 Bank of America Corporation

By Joe DiNicola, Bank of America Practice Solutions executive

 

 

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Access to capital is a vital component of growth for small businesses. While credit demand was lower in the years immediately following the 2008 recession, the lending market is much more fluid now. According to the spring 2015 Small Business Owner Report, 39% of small business owners said they have applied for a loan in the past two years, up from 28% a year ago. In addition, 19% of small business owners intend to apply for a loan this year, compared with 14% a year ago. And these numbers are even higher among younger small business owners.

 

In light of the importance of access to capital for small business owners, this month’s installment of the Bank of America Small Business Social Series discusses how to help entrepreneurs prepare, negotiate for and secure capital.  Click the video below to watch.

 

 

Carol Roth, author and CNBC personality, hosted the discussion. Participants included myself, as well as Barbara Weltman, Publisher of Idea of the Day® and Big Ideas for Small Business®, and Steve Strauss, author and small business columnist for the USA TODAY.

 

We hope you’ll watch! You can also check out previous Google Hangouts which have covered finding balance, tax tips, women and small business and more.

The small business lending environment is improving. Preparing a strong case will enhance your ability to secure financing.

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With interest rates still low and the economy improving, business lending is on firmer footing than at any time since the financial crisis. That means that businesses with sound financials, a comprehensive plan, and a thoughtful approach to the lending market are well positioned to secure the financing they need.

 

Preparation is essential, however, says Neil Berdiev, author of The Loan Financing Guide for Small Business Owners. “There are several key questions that you should be able to answer before you approach a bank: how much money do you need to borrow, why do you need to borrow the money, and when and how do you plan to pay the money back?” he says. “If you know your financials and what is driving your business results, and you are well prepared, you should be in good shape when you meet with a lender.”


Gathering the right documentation

Whether you bring your financial information with you to a meeting or email a packet immediately after, preparing at least three years of financial statements that demonstrate a history of profitability is a great place to start with your documentation. For a smaller, less well-established business, providing a thorough business plan can demonstrate to a lender that you’ve put careful thought into where you want the business to go and provide the context for the financing you seek. A marketing plan, cash flow projections, an analysis of your position relative to competitors, and even a succession plan can also be helpful in making your case for a loan.

 

The Small Business Association (SBA) notes that most lenders require small business owners to provide a personal credit history, personal financial statements, and personal guarantees from all principal owners. “Ensure your personal credit is in good shape by monitoring your credit report and regularly requesting your credit score,” Berdiev says. “Also watch how much other credit you have outstanding, because financial institutions are not going to want to go over a debt-to-income ratio of 36 to 40 percent.”


Choosing the right lender

Banks, credit unions, and community banks serve different markets and make loans of different sizes, so it makes sense to study the market before you approach a specific institution, says Berdiev. “If you’re plugged into a network of business owners who you trust, they can probably tell you which institutions make the size of loan you’re looking to get,” he adds. “Your accountant or attorney is another good resource.”

 

Beware of approaching just one institution based on a recommendation, however, because the friend or colleague who had a good experience with a particular lend may be in a much different situation than you are. One way to get a good sense of the entire market and what institutions may be in play for your type of loan is to call a number of commercial loan officers at area financial institutions. With some basic information in hand from all these resources, you’re in a better position to decide which lenders to approach.

 

 


Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.


Bank of America, N.A. Member FDIC.


©2015 Bank of America Corporation


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