Episode 25: Banking for Your Small Business with Joe Bergquist

Michelle: Not all banks are created equal. In this episode of Profit Points, we discuss things that you need to know in order to pick the bank that’s right for your small business. 

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Michelle: Hey everyone, welcome to this episode of Profit Points. And we are going to talk to a business banker today and understand exactly what happens in commercial banking and some of the pros and cons and things that we need to keep an eye out for as small business owners. And as you know, Profit Points is a podcast for the small business owner to hear about business topics as well as learn from industry leaders and other professionals. So Shawn, take it away. Introducing our guest today. 

Shawn: Yeah, today we have the privilege of having Joe Bergquist with Harleysville National Bank as our guest to talk about commercial banking and his experience. And, you know, what kind of value a commercial banker can bring to your small business. So thanks and welcome, Joe. We appreciate you joining us. 

Michelle: Welcome. 

Joe: No, thank you so much. I appreciate you both having me on. And definitely a conversation I’d love to talk about is, yes, small business is all day long. So, you know, where would you two like to start anything in particular? 

Michelle: Tell us a little bit about your background and you know, your history working with small businesses. 

Joe: Sure. So I’ve been in banking for 23 years. I basically started my career with a bank called Commerce Bank, which is now TD Bank. That guy, they got bought by TD back in 2007. I started working for them in 2000 and worked for them for basically about eight years and I worked. I started out working for them basically in the branches. And then I became what you call credit analysts doing underwriting of all types of commercial loans. I worked for them in an underwriting capacity in a number of different specialized departments. I kind of started out doing loans from like a couple hundred thousand up to about 10 million. And then I went into real estate lending where I got some experience doing track home development and very large construction rent like, you know, kind of like mall renovation type deals. Then I worked in middle market underwriting for a little while, you know, really doing those kinds of larger, you know, 50 -100 Million Dollar type transactions and did that for a little bit. And then I actually had a really interesting experience which, you know, might even be a great conversation for another time where I went down and worked in what they call a new center called the Small Business Development and Credit Center, where they basically credit score loans for small business owners up to $250,000. And it was a really great, really unique experience. We worked with a company who came in and created a totally customized software package for us to basically credit score loans. And that was a that was a great experience being able to work with that outside vendor to kind of create that program and how how you would credit score the small business all the different reports you know from what am I thinking of DMB and it’s just the credit reports, all the other things that we kind of get pulled into that program and how they would put that together. So that was a very interesting experience. And then after that I became a lender and basically was was doing all of your your kind of typical community lending, you know, basically commercial mortgages, lines of credits, term loans, letters of credits, ACH’s all of the typical products and things that would they would be very, you know, normal type product line up that a bank would offer to small business customers today and basically worked on early off it was basically a lot of just small business lending. And then I kind of went into small to medium size lending and then and then after that I changed banks. So it kind of shifted a little bit. And I went to work for a startup bank, a pure startup bank called Victory Bank, which was located in Montgomery County in Pennsylvania. And they literally and that was an adventure. We literally started in a double wide trailer. 

Shawn: Yeah. 

Joe: And while they were kind of building up. 

Michelle: Building the building. Yeah. 

Joe: Yeah. And so there were literally 12 of us working in, in a double wide trailer and it was, it was quite, quite the event. And on Christmas Eve, we moved into the headquarters building. And so we were all, you know, carrying and moving furniture, everything. 

Michelle: Merry Christmas. 

Joe: It was like yes, it was quite the adventure. But in starting with that, I mean, again, you’re really focusing on small business customers at that point. And it was in that adventure that basically it was right at that moment when we started that it was 2008, you know, the market had really collapsed. And what had happened was, I would say 90% of the banks in our area here around Southeastern PA had just stopped. I mean, they were just they not only had they stopped lending, they were literally asking some customers to leave the bank. They say, hey, say, hey, we want we need we need you guys to go. And so it was a very unique situation. And what happened was the Small Business Administration, the SBA, at that point in time said, hey, we’re going to put all these kind of special incentives out there for you to do SBA loans, or we’re going to offer instead of a 75% guarantee, we’re going to offer a 90% guarantee and we’re going to waive all the fees and we’re going to do all this or do all that. And that was the point where I basically went to the bank and said, Hey, based on all these incentives that they have out there, I think we should really get into SBA lending, because not only is it going to make it easier for us to lend to small business owners, but these these businesses that are basically getting asked, basically shown the door at their bank. 

Michelle: This is some place to go. 

Joe: And this is going to give us the ability to bring them in the door. And it was a tremendous success. I mean, we, you know, we did in six years. I think we did 85 SBA loans. And I was very, very proud to say that not a single SBA loan went bad. Every single deal that we did was a was a good deal and and did really well for the bank and really helped those customers out in a big way at that moment when, you know, their, you know, their bank just, you know, basically just said say sorry, we can’t we’re there’s nothing we can really do for you at the end of moment. And so, you know, and so, you know, Victory Bank was sitting there at that moment in time in a very unique situation because we had just opened the doors, we had capital land, we needed to lend money. And then we had all these customers just kind of flooding in because every other bank in the area was like, Oh, yeah, we’re not we’re not making any loans, right? Yeah. 

Michelle: So were these, like large banks that were kind of showing their customers to the door, like some of the bigger well-known banks didn’t want to. 

Joe: It was literally with every every size bank. Every size bank. It was interesting. There were both banks, big and small. And what you saw was in the preceding years from about 08 or I would say about 2012, 2013, you saw a number of those banks go out of business, you know, and again, we can kind of talk about that. We could do a whole podcast about this. 

Michelle: On banking and yeah. 

Joe: On the banks that failed in the area. But I think the important thing there was it was it you know, I had gotten a lot of experience in SBA lending. I had basically then developed pretty much an SBA department for that bank and ran that and monitored all the SBA loans and did all that stuff in there. So that was kind of it gave me a different take and a different look on lending to small businesses through the SBA program. And then finally, I ended up at the bank that I had at Harleysville Bank, where I am at now, again focusing on small to midsize businesses. But my focus here at this bank is really real estate related. I mean, you know, 90% of what I do here is commercial real estate lending, whether it would be to, you know, owner occupied property or investment property. But we’re looking at all property types. And I get into, you know, a little bit more into construction lending and things like that here. So again, but again, you know, the, you know, 99% of my customers are small business customers. They are, you know, 1 to 50 employees. They have revenues up to between probably 10 to 15 million. And that, you know, that’s the typical sized company that I’m dealing with day in and day out. 

Michelle: Right. And so just so that our listeners understand, you know, you know, a lot of times what happens in small businesses, you might start out renting a property and you decide that you want to either buy that property from the current owners or you want to find another property that’s good for you. And so in many instances you are, you know, finding properties and purchasing commercial real estate for your operating business. And so, you know, the two are kind of tied together and it’s always good to kind of work with a banker that’s going to be able to handle all of it, you know, not just the real estate purchasing part of it, but, you know, the business operations side of things and all the needs that are required for that as well. And, you know, that’s good for brick and mortar. But I guess also if you are interested in purchasing real estate as passive income, you know, if it’s a big deal and you know, we’re in a very populated area and so there’s a lot of commercial real estate and opportunities out there, and that is also a form of small business. So. Right. 

Joe: Well, it’s very interesting. I think one thing a lot of small business owners I think they miss is that, you know, they can always say you’re renting a space and you get focused on you’re like, oh, you know what, I really want to buy this, but, you know, I want to buy this. So I’m kind of. I have an asset and I’m building equity for myself over a long period of time. You know, I plan on, you know, hopefully, you know, maybe I’m pretty young. I plan on having my company be around for, you know, 20, 30, 40 years. And I want to build, you know, an asset and equity over time while that, you know, buying a building and having that be your building for your business, I mean, that that’s a huge asset and that’s a huge part of building wealth and equity for not only yourself, but for your company over time. But here’s an interesting thing that I’ve seen happen over the years, and that is, you know, business owners, you know, again, I mean, they look at the price tag of whatever it is they’re buying. And that’s a very important thing, obviously. But I think a lot of times they just look at them and say, oh, well, here’s a 2000 square foot building. Maybe it was like maybe it’s like what I call a main street property. Like maybe it was a building that was a house at one time and that was converted into office space. 

Michelle: Mm hmm. 

Joe: And so they’re like, Oh, this will be perfect for me. But what they miss is, like, kind of the excuse me, kind of the extra units, the extra passive income that can be earned from having multiple units. 

Michelle: Oh, yeah. So having a property that is not just housing your business operations, but also is being rented out potentially to other offices, other businesses or even a piece that might be residential. Right. That you would want to kind of rent out as well. That’s really interesting. And the opportunity there to be able to do that. 

Joe: If you could find a mixed use building that has office space on the first floor and maybe has, you know, two or three apartments above it that can provide some, some great extra income for you as your as your, you know, just, you know, taking that money back in every month. 

Michelle: Perhaps pay for the mortgage and not all of the burden falls on the operating company as much, and that can help alleviate some of that cash flow problem. 

Joe: Exactly. Or, you know, or you could find an office building that, you know, maybe is you know, I don’t know, maybe to use a good example, me finally an 8000 square foot office building and maybe it’s two floors, you know, 4000 square foot on each building. And maybe you take the top floor rent out the marina, right out the bottom floor. And again, you’re creating that passive income situation where, you know, you’ve got money coming in that’s helping you pay that mortgage, helping you pay that down, pay that debt down a lot faster. And yeah, those to me are. My favorite situations because, you know, because, again, you never know what’s going to happen over time. You know, maybe, you know, maybe your business, maybe you maybe you hit a patch where, you know, your business is struggling a little bit and revenues are declining or maybe a hit, you know, maybe the economy isn’t going so great for, you know, for a year or two. You know, because let’s face it, I mean, if you’re in business for 30 years, 40 years, you’re going to. 

Michelle: You’re going to have some ups and downs. 

Joe: Have some ups and downs. You’re going to face some, you’re going to face some, some lean times. So. So like I said, I like that idea of being able to have that kind of extra income or be able to generate that extra passive income when it comes to real estate. So hopefully, you know, some small business owners will think about that. If they’re in kind of the early stages of their company and they’re just growing and they’re renting right now and they’re thinking about what they’re going to do in the future. Hopefully that’ll be some good food for thought for, you know, for them to kind of think about as they go forward. 

Michelle: That’s great. Yeah, that’s great. So the different banks that are out there, you know, we have big, huge banks that people work with as small business owners and then we have little tiny credit unions that small businesses work with. Is there anything that you could give to the small business owner when they’re thinking about what bank to go with? The size of the bank really does make a difference, I think. And in my experience, some small business owners that have, you know, got into banks that just didn’t fit their needs upfront. So it would be like, you know, if they needed merchant services or if they needed different types of accounts. And the fees weren’t great on those types of accounts, lines of credit as well as, you know, other types of loans. Some banks just don’t work well with small businesses. 

Joe: Yeah, well, so here’s another take I’ll have on this. This might be something that you haven’t really thought of, is that, you know, the bigger banks, Wells Fargo, Bank of America, they’re kind of notorious for they’ll throw out these rate deals. You know, like, for example, they’ll put a rate special out there in a market and they’ll say, oh, okay, we’re, you know, we’re going to offer these lines of credit, say, you know, 100,000 and under, and we’ll do a prime minus one. And, you know, if you hop in and take this now and, you know, we won’t really have collateral on that line of credit, whatnot. And that’s what they do to try to bring in a lot of business, you know, and a lot of small business owners, really, you know, especially if they’re if it’s a young business. I mean, they’ll kind of jump after that real quick. You know what I try to explain to them? Is it? There’s a trade off in everything. So, you know, you might take that deal. You might get that money that you need. But, you know, what’s the customer service going to be like? You know what? You know when you need to get through, when you need to call them, when you need something, you know, are you going to sit on an automated phone for 45 minutes trying to get through, or are you going to talk to maybe you know, three people? Are you going to get assigned to a relationship person? But then that relationship person is going to change every year. You know, like almost literally every year you’re going to have a different person. And then you got to kind of start that, you know, process over all over again, you know, getting to know that person and everything else. And, you know,that’s the big thing. I think what most community banks around the U.S. offer is that really that true sense of relationship banking where you know yeah your average community bank they can’t always throw the best deal out there because you know, they’re you know, again, they’re like every other small business. They’re trying to they’re trying to keep their lights on and make money. And, you know, just like every business is doing out there. And I just think that that’s something that really you really need to take into consideration. Like, what do you know, were you really hoping to get out of this at the end of the day. 

Michelle: Yeah. 

Shawn: But when you’re talking about a relationship with the bank to what you know, what kind of qualities for that relationship, what kind of value does that bring? Is a business able to get a loan through faster or kind of cut through some of that red tape? Or is it just, you know, just like any other professional relationship, just whatever trust with the person? 

Joe: I think the best example of that is the PPP loans that we did. We, you know, just went through. Right. You know, we had, I mean, we did here. We did it probably as many as a lot of other banks around the country did. But we did basically 400 and I forget the exact number, but it was about 500 PPP loans totaling out about $40 million in total and total aggregate lending. And, you know, and we and we, you know, we made those out to our customers. And again, having that relationship with us at the bank was the difference between getting that and not getting that. Absolutely. And I can’t even tell you. I got some truly heartbreaking phone calls from people who were literally, you know, begging me like, you know, oh, hey, you know, I’m with this big bank or I’m with that big bank. And I put my application in and I haven’t heard anything for two months and I don’t know what’s going on and I can’t get anybody on the phone. And all I have to go to is this portal. And, you know, and they’re saying, oh, you know, if I pull my loan out, can I come apply with you? And, you know, we had made a decision very early on that we were just going to lend to our existing customers. And, and again, therein lies the value of the relationship. You know, if you have a relationship with the bank, you got the loan, it was no problem. And literally every customer that we had that wanted a PPP loan got a PPP loan, you know? 

Michelle: Yeah. 

Joe: It’s, you know, it was very hard. We found a way. We, you know, we had a lot of nights for a couple of months. I mean, I personally was sitting here at the bank till about 11:00 at night, every night for a couple of months. 

Michelle: To get it through.

Joe: Trying to get these things done. And but we did it, you know we did it. We did. We got them done. And I think that, you know, everybody was super grateful for that. And I think that that’s a real, you know, great example of the power of, you know, what happens when you have that banking relationship. 

Michelle: Absolutely. I’ve had clients that were in that same position. They were basically out there working with big banks, then the pandemic hit and they could not, for the life of them, get their PPP loans. And it brought to light the issues that people are having with large banks, especially the small business owner. And so, you know, they ended up pulling most of their things from these large banks and going right to a small bank that could provide them better customer service, better relationships, have somebody to actually call when you know something isn’t going right and or, you know, if they’re in need of something. And then if something changes in the world or changes in rates and, you know, someone’s personally reaching out to you on these things can really be a huge benefit to a small business owner. 

Joe: But I think also to you know, and Shawn, you had talked about this is there is it you know, I think the real magic is in building the relationship over time. It’s something that gets developed over the course of a number of years. You get you know, I get to know a customer. I get to know kind of how their company operates, how it runs, the people that work there, their, you know, their employees that work there for them, how they operate year in and year out. And that understanding is critical for when, you know, somebody comes back in and says, hey, I want to borrow money for this particular thing. Maybe I need to buy a real piece of real expensive equipment. Maybe I need you to know, maybe we have this great business opportunity and we have the opportunity to acquire another company or another book of business. And then that’s where, you know, my bosses, you know, be my chief credit officer, my chief lending officer, our board of directors. Like that’s that’s where they’re really leaning on me at that point to basically say, Joe, you know, you know, you have a deep understanding of this company. You know, you know, does this do all this, you know, is all this good? Is it normal? Is it okay? Like, you know, do you believe that all this is going to be a good thing for this company at the end of the day? And that’s where, you know, I say yes, absolutely. And then that’s the difference between getting a loan and not getting the loan. 

Michelle: Mm hmm. Mm hmm. Can make or break it. 

Joe: Yeah, because it’s not all about the numbers. At the end of the day, the numbers are always critical, always important. But it’s not necessarily all about that. 

Michelle: Interesting. 

Shawn: Yeah. I mean, the PPP loan situation is exactly the type of thing that differentiates a small or a relationship with a commercial bank in providing value. Michelle said it. I had clients in the same situation as well sitting there for however long waiting for these banks to get their portal together to be able to apply. And you know, time is ticking on. They have bills to pay and they have employees they need to retain. There’s a lot of issues that, you know, smaller banks were able to cut through to get them their loans quicker. 

Michelle: Well, one of the things that we say to our clients is build these relationships with the banker ahead of time before there’s a fire, right before you need a line of credit. Build your relationship with your banker, have the line of credit in place so that when there’s always going to be instances where something’s going to change, you know, something in your business is going to change or there’s going to be an opportunity and you need to act fast. And it may be for a short period, it might be for something that’s longer. But to have these things in place prior to those problems coming up or prior to those opportunities kind of coming to fruition, it will help you so much in the long term. 

Joe: So, you know, and a couple other things I just wanted to do before I forget, before these things go out of my mind. So again, coming back to the size of your company. So I mean, if you know, if you’re a company that’s got you know, I don’t know, you know, if you got 30, 40, 50 million revenue size, you know, you might have to go to a larger bank because you might it might realistically become a thing where you outgrow that smaller bank or that or, you know, even a smaller credit union you might be doing business with. And it could be a very real thing. I’ve had a number of clients. It’s happened with, you know, I’ve had people outgrow me and that’s fine. It’s, it’s okay. I’m happy for you. But, you know, now, you know, you’re going to need to go on to a bigger bank. But there’s also the theory, too, of not having all your eggs in one basket. You know, sometimes I tell people, you know, hey, look, even if you don’t want, like, a full relationship with me, it might not be a bad idea just to open up and, you know, keep a couple of accounts here or whatever, because you just, you know, you never know. I mean, you never, you never know what happens, you know, down the road. And, you know, because, you know, a lot of people think and I say this all the time, a lot of people think a bank is a bank is a bank. And if that’s so, that’s not true. Banks have personalities just like people do. And, you know, there are some banks that are big on some things and not on others. You know, there are some banks that are big time residential mortgage lenders and there are some banks that really don’t do any residential mortgage lending. There are some banks that are huge on commercial lending and don’t really do any residential lending. There are some banks that are big consumer banks and they do a lot of consumer lending and they specialize in auto loans and all this, all different kinds of product lines there. And and so, you know, you have to do a little bit of research on the bank to kind of figure out, like, okay, is this the best bank for me? Is this a big if you’re a small business owner, what you want to know is, is this a commercial bank? Do they do a lot of commercial lending? And do they have a real focus on small business owners? You know, those are the key kind of questions that you should be asking when you’re looking at. Any at any bank, you know, and I don’t think it hurts to ask around the area. I mean, if they’re a great community bank, they’re going to have a good reputation in the local market. If you start talking to some other or other local business owners, they’ll tell you, though. 

Michelle: They will tell you. Oh, yeah, yeah. 

Shawn: And so. Yeah. So, I mean, besides knocking on doors to banks and maybe some other business, there are out of there any other resources that people can go to to kind of see what banks, um, you know, offer like, you know, maybe a chamber of commerce or something like that. 

Joe: Um. Yeah, I don’t, you know. You know, that’s a great question, Shawn. I don’t know that, like, there is a kind of a one single place you could go to where you could find that, you know? 

Joe: Yeah. I mean, wouldn’t that be nice? But no, I don’t know that that’s necessarily out there. I mean where I would say that that might really come in handy. Like, you know, again, if you go to the Chamber of Commerce and you start asking around saying, hey, guys, what are some of the banks you deal with? Who does anybody recommend like that? That could certainly be helpful. And you could certainly get some good information from them there. 

Michelle: Yeah, great point. Great point. Well, we thank you for joining us today on our podcast. And we really learned a lot about, you know, the different ways banks can help you and the benefits of creating those relationships. And we thank you for all your expertise. 

Joe: Oh, thank you so much. And I’ll tell you what, if you both would like me to come back and talk about maybe just the commercial loan process of applying for a commercial loan, what are the financial information that you need and how you know, how that process should unfold, how long it should take? All that kind of stuff. If you’d like something that would interest you both, I’d be happy to. 

Michelle: Awesome. So now we’re going to have to schedule the next podcast. 

Shawn: A series with Joe. 

Michelle: Yeah, that’s right. Yeah. It’s great information. Really helpful for all of our listeners out there. So thanks so much for joining us today. 

Joe: Thank you. Thank you for having me. 

Michelle: For more information on getting ready for tax time, visit modernCPAOnline.com/quiz to take the free 60 second quiz to find out if your business is ready for tax time. We also encourage you to subscribe to our channel so you don’t miss any future videos and leave a like and a comment below if you have any further questions.