Small Business Banking

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Have you considered starting a business, but don't even know what the first steps are? Drew chats with Tara Shaffer and Mark Miller about the ins and outs of the financial side of starting a new business or expanding an existing one.

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https://www.ameriserv.com/

Credits:
An AmeriServ Financial, Inc. Production 
Music by Rattlesnake, Millo, and Andrey Kalitkin
Hosted by Drew Thomas

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DISCLAIMER
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts, with the goal of helping to take some of the mystery out of financial and related topics; as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast, and any resources available for download from our website or other resources relating to Bank Chats is not intended, and should not be understood or interpreted to be, financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial, Incorporated.

Transcript

Drew Thomas  0:01  

Fast fact, in the United States, more than 72% of small businesses have fewer than 10 employees. I'm Drew Thomas, and you're listening to Bank Chats.

Drew Thomas  0:33  

Welcome to the next episode of AmeriServ Presents: Bank Chats and today we are going to be talking about businesses. We're gonna talk a little bit about how small businesses get started, we're going to talk a little bit about how your bank might be able to help you with that small business, what kind of things you should be thinking about before you decide to get into that kind of water, as far as whether you should be an entrepreneur or run your own business, that sort of thing. The Bureau of Labor and Statistics says that 20% of small businesses fail within the first year, and 30% are out of business by the end of year two, and even 70% are out by year 10. So, if you see a business out there that was established in 1972, they're already outclassing 70% of the other businesses that started around that same time. So, to talk with me about this, because nobody wants to hear me talk all by myself, is Tara Shaffer. She is with us from AmeriServ commercial lending, as well as Mark Miller from our business services department at AmeriServ. So, Tara, tell, tell us a little bit about yourself and what you do.

Tara Shaffer  1:35  

Yeah, so, I'm an area executive with AmeriServ Bank, I run the commercial lending team in both Centre and Blair counties, as well as our portfolio manager group. I've been in banking a little over 22 years, really just on the commercial lending side of the house, both in credit and in lending. And that's what I do here.

Drew Thomas  1:54  

Awesome, awesome. And Mark, what you're, you're relatively new to AmeriServ, but what do you, what are you doing for it?

Mark Miller  1:59  

I'm new to AmeriServ. But I've spent 36 years in the banking industry. Primarily very similar to Tara. I was on the credit side and commercial lending side for a long time. For most of those years, spent 10 years on the retail side. Okay. And then there was two years in there, I kind of went away and walked away a little bit and spent two years as assistant director in SBDC, working with small businesses. So, a little bit of background there. What's the SBDC? Let's Small Business Development Centers. Okay.

Drew Thomas  2:30  

So, you know, talking about small businesses, I mean, it seems like entrepreneurship is on the rise. I mean, you look at TV shows like Shark Tank that have been on ABC for 15 years, everybody's talking about trying to start their own business, they have some product or service or something that is better than everybody else. How did these people get started? What are some of the things that that a person who's thinking about starting a small business should be thinking about?

Tara Shaffer  2:55  

I think one of the things they need to be thinking about is, you know, why? Why do they want to start a small business, because if you think that you just don't want to work for somebody else anymore, you want to be your own boss, you can be your own boss 17 plus hours a day, because that's how many hours you're going to be working at least in your, in your small business. So, I think you really need to understand why you want to go into a small business. I think that coupled with you know, is there demand for my product? Does it fit a need in the marketplace? How will it, how will it play into what customers are looking for? I think those are two of the key aspects that you really need to think about. And then who can I surround myself with? That's going to help me make this successful. Because no one person can do it alone.

Drew Thomas  3:42  

Yeah, I would definitely agree with that. I mean, I don't have any direct experience personally with running a business. But yeah, in my family, my dad has owned his own business for 52 years now. And that was one of the things that growing up, we always kind of knew that, you know, yeah, dad can be anywhere he needs to be when he needs to be except that when he's not at work, there's no money coming in. So, there are no sick days, there is no paid vacation. It's, you know, it's a little bit different, being your own boss, for sure. Absolutely. So, you mentioned, is there a place for my product or service? So, I guess what you're saying is, you know, people should probably look to see, first of all, is my product or service already out there? And I just don't know about it, or can I reinvent and sort of put a different spin on something I think is, there has to be some, some differentiating factor, right is I think what you're saying between what's already out there and what you can provide.

Tara Shaffer  3:53  

Yeah. Are you, are you solving a problem? Are you filling a gap in the market that's not there? Or is that product already out there, but you can do it better? So, I think that's what you really need to make sure that there's demand for your product because if you make the best pizza in the world, but you're in a community that doesn't eat carbs and doesn't want pizza, it's not gonna go well.

Drew Thomas  4:56  

Yeah, that's an excellent point.

Mark Miller  4:58  

And I think that that is, is a great point that you're making. Because on the SBDC side, and I said, I spent a couple of years there, what, what we used to see is, we'd see some people come in the door, and they had the, they had to way out idea that, you know, I've got this idea, and it's the greatest in the world. And we'd really say to them, what are you good at? What do you, what do you, what do you, what did you do before you came here? What, what do you know? And what can you do better at? And I think that's what really helps somebody get that off the ground. In a way not that crazy, not that, I won't say crazy, but that way out idea that I'm going to do something that nobody else has. But as Tara said, if I have, if I'm good at something, and I can provide that service better, that's, that's more of the that's more of the I think a better foundation for starting the business.

Drew Thomas  5:48  

Yeah, I mean, I just thinking about examples of something along those lines, I think of things like, like Yeti cups, or what Stanley Cups now are like the huge thing. Everybody wants a Stanley Cup, right, but I mean, people have been drinking out of, out of travel mugs forever. It's not that they invented something brand new, it's just that they, they did something that was already being done, but they just did it better. Absolutely. But at the same time, I don't think a lot of people realize that they didn't just appear there, there was research and development that went into that. There were engineering designs, there were patents that had to be filed, there's a lot of behind the scenes stuff that happens with entrepreneurs and businesses that before you get to the point where you're, you know, sitting on top of a pile of money. So, starting a small business, I mean, so what comes first, should you have money available to start the business on your own? Do you, do go to a bank to get a small business loan, what's involved in getting a business started?

Mark Miller  6:48  

Well, number one is the, you know, having the idea having the passion. If I was starting a business today, I don't know, I'd probably do something along the finance side, or help people with finances as opposed to, I don't know, doing therapy on somebody right, or trying to be, I just wouldn't do something like that. But I think and Tara made a good point earlier, it's who you surround yourself with. And I'm gonna make that pitch, there's a lot of resources out there that help you get started. And one of them is the SBDC. And I'm going to, I'll make my plug now for it. But having worked in there, you know, they provide training and resources to small businesses, startups, and existing businesses for expansion. And it's free. So, you're not outlaying any money right off the top for those, for that service that they'll provide. And they'll do everything from business planning, which I'm sure we'll talk about in this, in this segment. They'll do marketing research; they'll help you with at least knowing what licenses and things you have to do to get started maybe even help you decide what type of entity you want to be. Whether you should be a sole prop. versus an LLC, etc. So, help lay that groundwork through that business plan, which is also I think, Tara will agree with this, instrumental for the bank to have too when they're looking at, at startups and expansions and just businesses in general and that plan, that business plan is a working document. So, most people come in, and say, here's my business plan, and here it is. But what happens is, is that's a working document, and that can last you through 1, 2, 5, 10, 15 years, as long as you're in business. And you have to be adaptable and be willing to adapt it as time goes on.

Drew Thomas  8:35  

So, your business plan like you hear about people saying why put together a business plan, but what you're, so what you're, what you're saying is, your business plan, it's not something that you do once, you get your funding, you start your business, then you just throw out the window. Like your business plan has to continue, you have to have a process. Before we move forward, I wanted to touch on one other thing, too, just to make sure we understand the acronyms, so you said either a sole prop. or an LLC, what's the difference between a sole proprietorship and an LLC?

Mark Miller  9:02  

Well, a sole proprietorship is, well, if I was just doing it myself, right maybe I'm the only employee I can have multiple employees. But I'm, it's me by myself, in essence. Where an LLC I think Tara can speak maybe as well to this, is, her and I could be together in a business and we've, we've, we've got a Limited Liability Corp. which limits our liability. Okay, forward on certain things, but it gives us a framework, what tax wise etc.

Tara Shaffer  9:35  

Yeah, it's really something you want to work with your attorney and your, you know, tax professionals on to figure out what you're trying to accomplish and what is the best, you know, structure for you to start your business in, because there are tax advantages to each, there is liability protection to each. So, it's important that you understand those things and that's part of that getting your team together. And you know how Mark had mentioned the SBDC will help you with those type of things, they'll help you understand that for free. So, if you can't afford, you know, I say you should use your accountant, you should use your attorney, you might not be able to afford an attorney yet, or to afford an accountant yet. So, you use these free resources that are out there. And there are multiple SBDCs throughout the state. They're very frequently tied to a university. Okay? So, if you're trying to find an SBDC, look to your local university, that's probably a good spot to see if they have one associated with them that they can help guide you.

Mark Miller  10:33  

So, if you look at our footprint there, there are multiple ones in there. I mean, yes, I could go and name them all, but I won't. But we have one in Centre County. Yep. There's one associated with Penn State, Cambria County, here, St. Francis all the way down into Pittsburgh. Pitt has a, has one that I always looked at back in the day, they called the Center for Entrepreneurial excellence, to give a nice, fancy name. And then you have them all over the state. But each one, I think they've kind of morphed a little bit. So, they're still going to do business planning and some training for you and different things like that some research, but you might be able to find some expertise, if you're doing something internationally, somewhere at a different, you know, one that you wouldn't find maybe locally. So, the best thing is, look around.

Drew Thomas  11:25  

So, they're available more than just a Pennsylvania, right? They're across the country. Yeah. And they're funded by the SBA. Okay. So, and the SBA is?

Mark Miller  11:32  

Small Business Administration.

Tara Shaffer  11:35  

Bankers like their acronyms.

Drew Thomas  11:39  

Yeah, there's a lot of industries that use acronyms. But banking is a big one. Absolutely. So, you mentioned about not being able to necessarily afford a lawyer right out of the gate or an accountant right out of the gate, where does the money or funding come from to start a business? I mean, do you sort of have to have that funding ahead of time? Do you go to a bank and say, hey, here's my business plan, I want to get a small business loan. Where do you, where do you start there?

Tara Shaffer  12:04  

Yeah, so you know, getting a small business loan, banks are really going to be looking for some established track record We're gonna want to see some proof of concept, some, some kind of grass under your feet, that you've got things in motion, that you've got a year or two behind you, before we're going to be looking to put a bank loan in place to fund something. So, a lot of small businesses are really funded by owner savings. We call it the friends and family package, where you, you know, you go out and get investors from your, your friends and family network who invest in your company. A lot of people will leverage their own assets, they'll take out a home equity line of credit, or they'll mortgage their house where maybe they had it free and clear previously or take out more debt in those spaces to help fund those initial startup phases before their revenue generating, okay.

Drew Thomas  12:53  

So, in that case, though, you also have to consider that if your business does not get off the ground, you know that, that's a risk that you're sort of putting on yourself that, okay, I'm mortgaging my house, or I'm taking out another loan, that loan has to be paid back somehow. Yeah. So, if the business is established, as you said, if it has two or three years under it, say and it seems to be, it seems to be self-sustaining, you know, at that point, and you do get a loan, what happens if the business goes under? Does the bank then say, well, I'll take what I can get? Or do you still owe that money back? Even, even without the business being in business?

Tara Shaffer  13:29  

I mean, you're still gonna, you're still going to owe the money back that you borrowed. That's, you know, that kind of comes back to my initial concept of, why are you getting in this to begin with? Because it's, it's a long road. It's a long haul, it's a lot of work. It's a lot of hours, and it's a lot of risk. So, yeah, I mean, you still do if, if the business goes under, you're still responsible to help pay for those debts that you took out. Yeah.

Drew Thomas  13:52  

I mean, just from your experience, and without naming any names, I mean, do you have any, any sort of stories that maybe either you tried to warn somebody off on something, or maybe somebody didn't quite understand that before they got involved in, in doing a business of their own?

Tara Shaffer  14:08  

You know, I talk with a lot of startup businesses because I love the, I love the space, I love to work with people who are trying to figure out how to make it work and how to learn in those spaces. And I've had, I've had a lot of interesting questions over the years. I don't know if it's exactly where you are going with, with that, but you know, I had one person asked me one day well, do I put my, I'm building a budget. Do I put my salary in that budget? I said, okay, good question. Are you going to pay yourself a salary? Well, I'm not doing this for free. And I went, well, then it needs to go in the budget. Yeah. So, it's just you know, some people were just really trying to figure out where to start from and how to make this work. And, and I very frequently tell my customers, from talking to you, you are thinking like an entrepreneur, or you are thinking on the conservative side or you're thinking, you know, you're thinking about your craft, I don't see you thinking about the financial piece of it. Or I'll see someone that knows the financial piece inside and out, but they don't really have the craft part of the business. And that's when I say, you know, if you're a fantastic pottery maker, but you can't build a budget to save your life, you need to find a partner, you need to find that other piece, very few people that I've ever met in my 20 plus years, are great at both. It's a matter of putting the right people around you, whether it's a partner, whether it's an advisor, whether you know, it's one of your accountants or someone else, but don't, don't try to go it alone, because you need all of those pieces to make it work.

Drew Thomas  15:41  

I think that, that's probably a good point, it's probably the reason why so many businesses fail so quickly, is that you might have a fantastic idea. But if you can't implement it in a way that is financially stable, to be able to keep yourself in business, yeah, you're just not gonna be able to make a go of it. I guess, I guess that kind of leads into my next question, which was sort of the idea of, if the business doesn't succeed, does the bank sort of, okay, I'll use this example. If, if you mortgage your house, right, banks are not in the business of wanting to sell your house, they don't want to take over your house, they don't want that on their books, they don't want to have to resell it, you know, that's not the bank's goal, right? But ultimately, your house is your collateral, right? If, if for whatever reason, you can't make your mortgage payments, and there's no way to work out an alternative payment plan or whatever it is that your bank would most likely work with you on first, ultimately, the bank could then use the home as, as a repayment for the loan. Right? The asset of the house. Yeah, it was collateral. So, is the business, like a lot of businesses rent space, so there is no building that they own? A lot of businesses are service based, so maybe there is no product overhead to handle. So, how does a person protect themselves personally, and their personal assets from, how do they keep them separate from the business? I guess, is my question.

Tara Shaffer  17:05  

And that's, I think that's the really hard part. Because like you said, you're renting a space, you don't have a building as collateral. If you're, you know, you don't have a whole lot of equipment, you know, if you're a restaurant, liquidating tables and chairs from a collateral perspective isn't getting you a whole lot, right.

Mark Miller  17:23  

I was gonna say, yeah, very little on the dollar there. Yeah, with a restaurant, so...

Tara Shaffer  17:28  

Yeah. So, I mean, the concept of protecting yourself personally, with the concept of starting a business doesn't really vibe together. You're, you're kind of all in, you don't really get to the point where you can really start to protect yourself, until the business is already standing on its own to begin with. Because if we're doing a loan for the business, we're going to want you as a personal guarantor, on the loan, or in some cases, a co-borrower, depending on the structure of the loan.

Mark Miller  17:56  

And I've done that throughout, with different businesses, and yeah, you're all in on this. So, I mean, you have to, you have to ask that question. I go back a little bit, as to how much risk are you willing to deal with? Some people are risk averse, and they're like, well, I really don't want to do that. That's why I'd probably never start a business. But I think those who are, are good with risk. They can, they can, I won't say survive, but they can at least get off the ground, right. And they understand what those risks are when they get into it. And they have to be all in. And a lot of times, they have to be, they have to be comfortable with signing the front of the check, instead of the back of the check. So, yeah, because people, we get our checks, goes back to the 80s when I first started, sorry, but you know, people will sign the back of them. Okay, I'm getting paid. Now, you might not get paid, goes back to you know, whether I'm putting my salary or not, that first year, two, you might not take that salary, right, you might or might not. So, you have to be willing to take what you're making and write that check back in and reinvest it and continue to grow. So, if you're not willing to do those type of things, on top of just under, also understanding that, that you have to be comfortable with public failure too.

Drew Thomas  19:23  

That's, that's probably a good one. Yeah, absolutely.

Mark Miller  19:25  

If I start a business, I go down the street, and I don't make it, everybody knows I don't make it. Right? So, if you know, I mean, I'll use this example. You know, if you don't, if you decide not to go to law school, you know, you just say to somebody, I just decided not to go to law school, I flunked the LSAT, or I want to spend more time with my family, I got left go. But when you fail in the business, you are the business and when you fail, you have to be comfortable with those couple things. I think, yeah, as a business owner, or at least on the risk side, you know, I gotta be willing to be all in on this, and it might go south, and I could be on the hook, I have to be willing to do that if I want to take that step.

Drew Thomas  20:15  

And I think this is, this is the conversation we've had so far really seems to, I don't want it to sound like a Debbie Downer, like you can't, like you can never do this don't even try. That's not what this is about. But I think really, what we're learning so far here is that there's a lot of people that want to spend time focusing on the successes of entrepreneurs. And there's a lot of people that want to point to the Elon Musks of the world, they want to point to the, the, the people that have, that have made something out of nothing. And they want to be that, right. And there's nothing wrong with having that kind of a dream. But you have to also understand that there was a lot of work that went in behind the scenes, and a lot of, a lot of struggles and a lot of failure that may have come along with that before they reached that pinnacle. And you have to, to your point, Mark, you have to be, to be willing to accept that.

Tara Shaffer  21:10  

Well, and I think it's important to know, and to think about, that 64% of American jobs are small businesses. This is such, such an important segment. And it's important that we do everything we can as a society to protect this segment and help them grow and help them reach the next step. And I think going into the experience with your eyes wide open as to what to expect is really the first step in helping them figure out how to make it. Because you don't get a big business unless you started with a small one.

Mark Miller  21:42  

So, I'll just preface this by saying the restaurant is still going strong. I can remember being at the SBDC, and a young man walked in one day and, and he wanted to start a restaurant. And he came in and he knew everything about how to run a restaurant. I mean, he had done it, he managed them, he just never owned his own. But he wasn't as good on the finance part. And so, we did, at the SBDC, we did every, you know all the legwork for him, put the business plan together, put the numbers together. And he wanted to go to his bank. I wasn't so sure that was going to work. And he went to the bank. And they did a loan for him. They did it because going back to what you said Tara. His, his father, very well-known and established, and went in there and became a co-borrower with him and went in on this with him. And through the years they, and somebody could probably figure out who it might be, I don't know, but they said they've survived two fires, they have continued to rebuild and reinvent. And they're still there today. And it was all because you know, again, going back to a success story, it can happen. It does happen. And it's in our best interest for it to happen, because he's employed a lot of people over the years there. And I've eaten her many times. And it's just, you know, I just think it's a, it's a good story. And if they can succeed, it's not all like you said, it's not all Debbie downer, right? Yeah. 80% of them, do make it right. According to the statistics. The First year.

Drew Thomas  23:16  

You said, you said that 64% of businesses in the United States are small businesses.

Tara Shaffer  23:23  

64% of the new jobs are created by small businesses.

Drew Thomas  23:26  

Okay, so that, that is a very important statistic too, I think. I mean, we talked about in November, they always have, you know, Small Business Saturday, right, which is like the Saturday right after Black Friday. And, you know, it seems like sometimes that's the, the only time that there's a lot of public recognition of the fact that small businesses really keep the country moving in a lot of ways. Your local hardware store, your local bookstore, your local coffee shop, whatever it might be, where you go to have lunch every day. Those are the kinds of places that are sort of salt of the earth type businesses that maybe don't get the recognition publicly or across the nation. But if you took 64% of our small businesses away, what would you have left?

Tara Shaffer  24:11  

Yeah, and those, they contribute to 44% of our US economy, economic activity, according to the SBA, I mean, they're, they're super crucial.

Drew Thomas  24:21  

Wow. So, I wanted to touch a little bit on the business plan too. What goes into a business plan, like what do you need to have in there other than a budget, for example?

Mark Miller  24:33  

Well, you're, you're starting off with, parts of it would be your management structure. So, as we said before, maybe at that point, you've decided that you are just going to be a sole prop. or you're, maybe you do want to do an LLC or a single owner, LLC, or whatever that might be. And so that will be laid out in there. Not entirely, but it will be laid out, you know, the name of your business, right? You have to have a name and you have to file fictitious names and different things like that. So, that's in there. Organizational structure. So, if you have multiple employees, or however that's going to be, you know, maybe Tara and I are partners or somebody else's working, I've got two other people working for me. So, that whole management structure layout, maybe you're located, there's, there's a lot of background information. I've even seen it to the point where there's background information on the owner himself, which is extremely, extremely important for everyone, right involved, because we have to know that this person is lack of a better term qualified or knowledgeable, I mean, what they're going to do going forward, right. So, that's in there. And then at the end of the day, I think you can have your own separate marketing plan, but there's probably going to be a little bit of a marketing plan in there to help kind of, whether it's going to be social media, or whatever that's going to be to start out, and you're probably going to be on a shoestring budget there anyway. But you still have to have a marketing plan. And that can be included in that. And again, the most important thing is going to be your numbers, right? What those projections are going to look like and, and they have to be realistic. I've gone through, as a credit guy, and a lender, I've gone through those and you see things that you know, sometimes just don't make sense or aren't realistic. So, the more realistic the numbers, the more realistic projections, the better. Okay, like I said, it's a working document because your marketing plans can change. Employees might change over time. You might increase, right, you might expand your market. Maybe right now you're just focusing on Johnstown, or State College or whatever. But then it might be, hey, I can, you know, I'm marketing to all of Western Pennsylvania, or Central Pennsylvania. So, that all goes into that business plan. And it's a start. It's a foundation. But again, it's a working document that should stay with you. Too many people just take it and then okay, I got it and put it away. But it should be evolving as you evolve.

Tara Shaffer  27:10  

Yeah, absolutely. And I like to see some industry analysis in there, who your comp, who your competitors are. Good point, I like to see a lot of that stuff in, in the business plans as well. And then I also challenge you know, the entrepreneurs that I do work with, to kind of go back and keep looking at that initial business plan as you update it. And, and remember why you got started, remember how this started. It doesn't mean that that's the way you still have to do it but remember why you got started and what's gotten you to where you're at now, because that kind of can help guide where you're going from here.

Drew Thomas  27:42  

Okay. So, assuming that, let's start looking at this from a more positive perspective, assuming that I've got my business off the ground, I'm relatively successful, I'm making ends meet, I'm making a profit, I'm doing all those kinds of things. And then, for example, in my business plan, it says, okay, well, between the years six and eight, my plan is to expand, to add a second location, to find a new market, whatever that might be. And in order to do that, at this point, I kind of need a loan or something like that. When you go to your bank, is it similar to getting a mortgage? Or is it a little bit of a different process? How do you go about getting a business loan at that point?

Tara Shaffer  28:21  

Yeah, so business loans are definitely different than consumer loans. And I think a lot of people get confused about that, like, especially if they're going to buy their first building, they're like, okay, we're ready to be done renting, we're gonna buy our first location. And they, they come to the bank, and they're looking for a 30-year fixed rate loan for their, their business building that they're going to buy. That's how you do residential lending. That is not how you do business lending. So, business lending is going to be definitely different. You're looking at, you know, probably a max of a 25-year amortization and not a 30 year. And you're also looking at probably a max of a five-year fixed rate. And then those rates going to reset after five years, and you're going to renegotiate the loan and start over. You know, mortgages, typically, you can pay whatever you want over and above on a mortgage. That's not always the case. Sometimes there's prepayment penalties and commercial loans, and they're all structured a little bit differently based on your needs. But there's, they're very, very different than what people are used to from a consumer lending perspective. And that's usually an eye opener for entrepreneurs.

Drew Thomas  29:25  

I'm curious would a prepayment, why would there be a prepayment penalty? Like what did? Why is that in there?

Tara Shaffer  29:30  

Yeah. So, when a commercial business funds your loan, we know what margin we're making, what profit we're making on lending that money to you. And we often on the back side, from what a bank does, we'll go and invest or have funds that will fund your loan and we protect our margin on that side. So, how interest rates are moving you paying that loan off could be detrimental to the bank from a protecting our margin piece. So, that's really why banks should be doing it. Some banks use prepayment penalties as handcuffs, they don't want you going somewhere else, they put a lot of work up front end to getting your loan on the books and putting everything in place. So, they put a prepayment penalty, and if you're going to refinance your loan at another bank, a lot, a lot of banks treat prepayment penalties that way. Yeah. I like them more from a protecting our margin perspective, just like you would as a business, you want to protect your margins. Sure. Yeah.

Drew Thomas  30:26  

And I think it's important to maybe sometimes understand the logic behind why a bank does certain things, right? Because you know, from, from an entrepreneur’s perspective, or even from a personal perspective, sometimes your bank does something and you think to yourself, why would they do, they're just trying to... And that's not really the case. It's really, there is a logic, there is a process, there's a purpose to what they're doing. And maybe sometimes that isn't explained as well as it might be to understand both sides of the coin.

Tara Shaffer  30:26  

Yeah, like a lot of banks, you'll see banks charging unused fees on a line of credit. And someone's like, well, why are you charging me when I'm not, I'm not using your funds? Well, if we've given you a million-dollar line of credit, we have to reserve capital for that line of credit, we have cost to keeping that line of credit open. If we're not using it, if you're not using it, we're not making any interest on it. So, I explain to my customers, you know, you own this strip plaza, and your tenant says I want to rent unit A, and I'm pretty sure at some point, I'm going to rent unit B, so don't rent that to anybody else. Just leave that one open in case I need it in the future. Whoa, wait a minute, I'm losing money if I can't rent unit B to somebody else. How is this? You know, and then they start to understand those concepts of why banks are doing the things that we're doing. Banks aren't nonprofits. You know, yeah, the majority, I should say the majority, you know, the majority, credit unions and that kind of stuff, yes. But you know, banks are for profit entities. And a lot of people don't, they don't think about that piece of it.

Drew Thomas  31:57  

And even if you're not necessarily a for-profit entity, you still have to cover your expenses. Absolutely. Right. You have employees, you have things that you, you have overhead, you have buildings. So, even if you're not necessarily in it for profit, you still have to cover your expenses. Right? And there's a cost to doing business. Sure. And I think sometimes that from a banking perspective, we deal with a lot of intangible things. We don't, you can't walk in and take a box off the shelf and say, this is my loan, right? It's sort of like a theoretical thing that you have papers and stuff. But, but putting it in the perspective of okay, you have a strip mall, and you can't rent half of your spaces just in the event that I might want to do something with them someday, I think puts it in a good sort of tangible, realistic way to helping understand that. What kinds of things can your bank do to help you run your business? Are there, beyond a loan, I should say, are there certain products, services, things like that, that your bank might be able to help you do? I'm thinking along the lines of things like, like remote deposit capture, or budgeting, that sort of thing.

Mark Miller  32:58  

And you've, you've started off pretty well there. I mean, online banking, remote deposit capture, right, that should be something that every business has, regardless of what your size is. Because you want to be able to view your balances and view your activity daily. So, those are things that help you on a daily basis and help you get your money in there. Look, what we're trying to do on the business services side, is we're trying to help companies manage those things, manage their day to day and become efficient through managing their receivables and payables, protecting them against fraud, there are protections out there, because fraud is prevalent, and at the end of the day, optimizing their cash flow. That is hugely important, I think, to the business side, because as we've been talking here, you know, it's sometimes not easy to get that loan or get that funding. And someday, sometimes the best way to fund yourself is to optimize and utilize your internal funding, as I like to call it, or your cash flow. And we, we here at AmeriServ, or most banks, will be able to put products in, in place for them to be able to do that. So, whether it's online banking, mobile deposit capture, ACH services, right? Not only for debiting payments, but crediting, okay, paying bills, and then also paying your employees if you do have employees, right making life a little bit easier and a little bit more efficient. Wire transfers, something that people don't, don't think about. Sometimes you have to make a larger payment than normal. How do I get that money to that supplier? How do I get to where it needs to be? And you can do them online. So, if you have online banking, with a pre-authorization and an agreement, you can utilize and do it online. So, if you can't get to the bank, right, it's snowing real bad and I gotta get this out, but I can't get there. Oh, I have it online, I can do it, making life a little bit easier. But it's managing those aspects, the liquidity, the fraud, the cash flow, those are the things that we can help them with on a daily basis with these products and services. And I'll get back to fraud, which...

Tara Shaffer  35:18  

That's huge. Absolutely.

Mark Miller  35:20  

And businesses are not averse to it at all. I mean, it's happening to everybody. We have, we have such things as check positive pay, and ACH positive pay. We also have debit block filters that can help them limit their exposure to fraud. And it's something, I was talking not too long ago to a group of small businesses in the area. And I mentioned to them that, regardless of what size you are, you should take advantage of that, protecting yourself against fraud. Doesn't matter if your large business or small business. They said is there a cost to it? Well, there is a cost to it, unfortunately, there is. But would you rather lose $10,000 $12,000 $15,000 plus, or something like that, you know, in a fraudulent activity, or protect yourself paying X number of dollars a month for the for the product or the ability to control that side of it, so.

Tara Shaffer  36:17  

Yeah, and like, like Mark said, with like the positive pay, and some of the different things we can do like that, you know, I tell my customers, it's fire insurance before you've had the fire, after everybody's had fraud, and they've gone through it, they all have positive pay now, they all have those things in place, because they realize what a nightmare that was to just go through. And I said get the fire insurance before you have a fire, not after.

Drew Thomas  36:39  

Yeah, explain what positive pay is, I don't know if that's, I don't know if that's an industry term, but you could find anywhere or if it's just what AmeriServ term is, but explain what positive pay is.

Mark Miller  36:50  

It's pretty much an industry term. But it's basically on the check side, you're, you're putting in a check register every time you're writing checks. So, there's numbers of checks, and amounts and different things that you're, you're giving, you know, you're providing the bank. And then as checks come through, to keep it very simple, if something is not on that register, that you've submitted, then you're gonna get a notification. So, hey, Drew, here's check number, here it is, is, and you have the chance to either pay it, or decline it, or deny it based on what you see there by a certain time every day. And it's well worth doing that every day, because as Tara said, we've seen fires happen, and then people want to put out the fire after it's occurred. And then they've lost something and then we put it in place for them going forward. But in the case of positive pay, that, the check positive pay, that, that's one there that you can control on a database, same way with ACH, too. You know, you can submit who's going out there, what money is going out there. You're paying electronically, right? Yeah. And then there's a list, and then if something comes in there that's not on that list, you're gonna get a notification, and you're gonna have the ability again, in that instance, to approve or decline that transaction.

Tara Shaffer  38:06  

Yeah, because like, the types of fraud that we're seeing with checks, are people taking a check and duplicating it, and then changing the payee. Or they duplicate it, and they change the dollar amount. So, if everything on the check that's being presented to the bank doesn't match the list that you gave us, that said that what that check should say, that's when we say, woah, woah, yeah, yeah. And we kind of, you know, we stopped the process.

Drew Thomas  38:30  

Yeah, that makes, oh, that makes sense, too, because a lot of banks will charge for even stop payments, right? So, it's whether you're being charged for positive pay, or charged for a stop payment, or, or being hung out to dry because you experienced fraud and now your, your, your account is down, as you said, $10,000 $15,000 out of, out of a payroll account or something like that. You're paying somehow, you know, and I think I agree, I would rather pay a few dollars a month for a service that allowed me to be proactive rather than reactive.

Mark Miller  39:05  

And as a small business, you're working so hard every day, right? Putting in that time and that effort, and then to have no ability to control that side of it, that fraud side of it. I think every business should need to look at that and take advantage of that. Because you don't want to absorb some loss, on that side. It's just me.

Drew Thomas  39:27  

It’s no I agree with you. And honestly, I think of, it's funny because there's, there's an adage time is money, right? And everybody knows that adage, but nobody seems to apply it very well, at times to a business. You think about, well, I'm gonna buy this piece of, piece of equipment, right? And the piece of equipment is $5,000 but they have a better version of that piece of equipment that's $7,500, and it does three of the things that I'm going to have to do manually with, with, with machine number one, it does automatically. My time is worth money. Right? So, if I have to, yeah, I could save $2,500 buying the piece of equipment that, that I have to do three manual things with, right? But if I'm doing those manual things, that means I'm not devoting my time to something else that could be making me more money. Right? So, and it kind of comes down to the same thing with your banking, you know, if you can use online banking, if you can head things off at the past and do things proactively, get a notification on your phone that says, do you want to pay this bill? Do you want to pay this check, whatever, without having to always take the time to run to your local branch and do things like that, that's time you could be investing in your business, that you're not spending driving to the bank every day.

Tara Shaffer  40:37  

Absolutely. And if you have, you know, oh, well, my assistant does that for me every day, she runs over lunch and takes the, takes the deposits to the bank every day, well you know, if she's in an accident on the way to the bank, that's your insurance. She's doing business work. Yeah, yeah, over that, you know, it's just some things that people don't even think about.

Mark Miller  40:56  

Yeah, and payroll. People sweat over doing payroll all the time. Right? So, I know, we have two methods of it, you know, we have the ACH side, the online side where you do a template, or create a template, and have all your information in there. And it's, it's just saving you more times, because you're not writing a check. You're not logging it in putting it in this template or making sure that the right amounts are in there, it's already been tested and sent out and direct deposit, you're hitting a button, it's gone. Okay. And then we have another third party that we work with here, right? And a lot of places have this, that they do everything, soup to nuts, okay, with regards to payroll, and delivering payroll, even some HR functions, some things that maybe you just get too tied up on. And so that's another added service that we provide on our side of the business services side that helps them run more efficiently, in their day-to-day. And as you both, both you and Tara said, you get tied up in certain things, and then you can't turn your attention to other things that matter. Yeah, as well. So, if we can help that, that business run more efficiently, then we're doing our job. Got it? Yeah.

Drew Thomas  42:16  

Absolutely. So, Mark, I think you started talking a little bit about this a little bit ago, about fictitious names and things like that. So, what do you need to do? What does your bank need to know, to be able to open up an account in the name of the business rather than in your name?

Mark Miller  42:33  

Yeah. Well, I mean, first, you have to register your business with the state. So, you have to have a state registration, a fictitious name, which should be filed. So, if it's Mark Miller, doing business as Bridge City, I'm looking at a picture, there, just making up Bridge City Solutions, making up a name there. I have to register that fictitious name with the state. Right? So, nobody else has that name. So, it's my name, right? So, you have to have that. If you're an LLC, you're going to need an operating agreement. You're going to need other various licenses, depending on what type of business you are in to open that account. And of course, we're going to need your IDs, as well, and anybody else associated as a signer on that account. So, depending on, now, sole proprietorships are a little bit different in a way, as far as accounts go, but I still suggest that, you know, I'm not putting it into my personal account, I should have a separate account for the sole proprietorship, although I do see people that try to...

Tara Shaffer  43:47  

Your accountant will thank you for having a separate account.

Mark Miller  43:52  

But yeah, they should be they should be having separate accounts, okay.

Tara Shaffer  43:55  

And it's really important when you have multiple people who will be signers on the account, that when you do those, you know, operating agreements or bylaws, that you're specifically listing out, okay, who has authorization to open accounts for the business, who can close accounts for the business, who can sign on behalf of the business? Sometimes I see people put those documents together and they don't address those things at all. And those are things that the bank, you set the roles for, as the entrepreneur, you set the rules for your business. It's our job as the bank to follow them.

Drew Thomas  44:26  

Yeah, that's, that's a really good point. You know, you don't want somebody just coming in off the street and saying, yeah, I can take money out. You have to tell the bank ahead of time, you know, who's allowed to access that account, who's not just like, if it was your personal account, you know, nobody can just come in and take money out of my account, theoretically.

Mark Miller  44:42  

And that has to be set up that way. And being on the retail side, we take that, we take that very seriously.

Tara Shaffer  44:48  

Extremely seriously. And some people will make sure who we can talk to. Yeah, they'll make their rules really restrictive. And I'm like, that's fine. And then when someone else calls in and wants information, you know, I can't give it to you, you have to go, well, what do you I mean, I have to go, I'm like, I'm following your rules. Yeah. You guys are the ones that set it up this way. So, you know, and that's fine. However someone wants to set it up, we're happy to work within those rules, but we're gonna follow whatever they asked for.

Drew Thomas  45:14  

And that's probably another one of those situations where if you've, if you've got people around you, helping you to that, whether it's your lawyer, your accountant, whatever, make sure you're talking to them, make sure that communication within your business is good, so that you understand what, how your accounts are being set up, and you know what you're doing. So, you've both worked with business owners for many, many years. And just as a way of sort of trying to wrap all of this up into a nice bow, based on the business owners, you know, the people you've worked with, have you, have you ever gotten any pieces of advice from those business owners, that might benefit a person who's thinking about starting a business, you know, knowing what things that they wish they would have known when they started?

Tara Shaffer  45:57  

You know, I talked to a few of my entrepreneurs, business, people who have established multiple businesses before I came here, you know, kind of as part of my background prep work. And some of the advice that they gave me, I said, you know, what did, what would you wish someone had told you, and, you know, they said, have a good budget in play, make sure that you know, what your costs are going to be, and then add some more on because it's going to be higher than you think. It's like every project you come into, even if you're working on a project at your house, it always ends up being more expensive than you expected, something always comes up. Ain't that the truth. That was one of the pieces of advice. And then the other one, from the other individual said, it's, it's who you surround yourself with, I mean, he really pounded that concept home of surrounding yourself with the right people that are going to help push you forward and help give you good advice and tell you the hard things that you might not want to hear, but you know, you need to hear. So, making sure that you build that network around you is really going to help make sure that your business succeeds.

Mark Miller  45:57  

And I think, you know, just perseverance is a big thing. Because you're gonna go through some ups and downs in your business life. I'm gonna use a quick story here. So, I was thinking about this the other day in preparation for all this actually, a couple of weeks here in preparation. But my brothers-in-law have owned a business, and they've been in business for over 40 years. And it's changed over the years. And it, they started out with one singular product being sold to one segment. And they were selling to homebuilders, and, you know, contractors, etc. And through the years, they have more, and it's always been with wood, but through the years, they have done everything from making chairs, tables, I have few in my house. They have done, different, they just even just manu-, not even manufacture, but just resurfaced the wood. Right? A contractor would bring them wood and it was rough wood, and they would just plane it down and fix it, get it all dried up and out it would go back out to him so they can do the contractor would do what they could do. And the big thing for them is it has been perseverance and adaptability over the years. And one thing they did that Tara keeps ringing in my ears here, is surrounding themselves with good people. Okay, they got themselves a good accountant, got themselves a bank that they've been working with for years and years, that knows them now. And through this, they've just continued to work, and I don't see them quitting anytime soon. Yeah. But you know, they had lost their jobs after the flood, and ended up going into business for themselves controlling their futures. And they've gone this far with it. And I just think, you know, adaptability, perseverance surrounding yourself with good people. It's all great advice.

Drew Thomas  46:56  

I think, I think surrounding yourself with good people to include your bank. Yeah. I mean, right. I mean, it really does. I mean, you have to have a bank that you feel like you can work with. A person, ideally at your bank that you feel like you can work with, because that's going to be an ongoing relationship too. Even if you're only, you think you're going in for a small business loan, or you think you're going in to just open a checking account, that ongoing relationship that you have with your bank is going to be important too, because being able to call somebody up and say, hey, I'm having a down year, I'm having this, or I'm having trouble with that. And having someone who knows you can then talk you through okay, well, here are your options. Here's what we can do to help. Here's how we can try to maybe take some of the pressure off short-term and then come and revisit it again as you get back on your feet. That sort of thing makes a big difference. Well, thank you both very much for your time. I really, really appreciate you coming down and I know Tara, you, you made a trek in the ice, you know, and so forth. Mark, you're here every day, so.

Mark Miller  49:05  

I got lost going from the fourth floor to the second floor, so. I haven't been here that long. Thank you very much. Thank you, thank you.

Drew Thomas  50:22  

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who's aware of the facts and circumstances of your individual situation. Our appreciation to Tara Shaffer and Mark Miller from AmeriServ for joining us on the podcast today. Opening a small business can be both incredibly rewarding and incredibly demanding. Often being your own boss means also being your own inventory manager, bookkeeper, or janitor. Success comes with long hours and difficult challenges. But we want to reiterate that being a small business is no small thing. The 64% of US workers whose jobs depend upon small businesses produce 44% of the US economy. So, if you're interested in opening one, meet the challenge by surrounding yourself with good people, find your niche and work hard. If you haven't followed or subscribed to the podcast, we'd really appreciate it if you would, it helps a lot. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. Production and distribution by Jeffrey Matevish. Episodes can be found on your favorite podcast service or by visiting ameriserv.com/bankchats. For now, I'm Drew Thomas, so long.