Use what you've got: credit union small business opportunities

WASHINGTON-With the number of small businesses growing at a rate of 6%, or 2.4 million a year, credit unions can not afford to miss out on this market, according to a study by CUNA and NFO WorldGroup Financial Services. The 68-page report recommends that credit unions profit from the solid trust relationships they have with their members in order to gain their commercial, as well as personal, business. The SOHO (small office/home office) Market-Growth and Potential found that business financial service providers are not actively pursuing potential SOHO clients. According to the study, nearly two-thirds of SOHO owners say they have not seen hide nor hair of a sales pitch for commercial financial services in the last year. The lack of enthusiasm of financial service providers for small business can be an easy one for credit unions to take advantage of. The study found that more than half of SOHO owners are affluent, which translates into exceptional revenue potential for the financial institution that snatches up their business. In addition to commercial checking and savings accounts, about two-thirds of SOHO owners rely on some type of credit product, which they usually obtain from their primary financial institution. Currently only 9% of SOHOs identify their credit union as their primary business financial services provider, the study discovered. Of those owners who consolidated their personal and commercial financial relationships, approximately 70% began with a personal financial relationship. This is where credit unions can really step in with their reputation as trustworthy institutions, according to the study. However, the credit union share of the small business pie is more like a crumb. The study found that, at most, credit unions hold 18% of the market share of commercial, unsecured lines of credit. Additionally, only 17% of personal loans granted to finance business activities came from credit unions. Less than 1% of SOHO members have commercial mortgages and/or business term loans through their credit unions. In fact, 80% of SOHO credit union members bring at least part of their commercial business to banks or savings and loans, while just 41% of SOHO owner credit union members bring part of their financial business to credit unions, the study reported. Only 7% of SOHO credit union members use credit union services exclusively for their business, CUNA’s Vicki Joyal said. NAFCU is working to broaden credit union commercial lending by urging the Small Business Administration (SBA) to expand their 7(a) guaranteed loan program for credit union eligibility. Currently, according to NAFCU’s monthly Flash Report, only credit unions that have a “geographic” field of membership, such as a community charter, are eligible for the SBA 7(a) guaranteed loan program. This policy effectively narrows down credit union eligibility to 10% of federally chartered credit unions, while banks and thrifts have complete eligibility, the report said. Only 17% of the approximately 130 federal credit unions surveyed are SBA approved lenders. According to NAFCU, SBA’s policy goes against its own previous legal opinion. In 1976, NAFCU argued, the SBA wrote, “…it would not be appropriate or consistent with the coordination mandate of the Small Business Act for SBA to exclude participation with lenders who have membership restrictions pursuant to Federal statures or regulatory requirements of other federal agencies.” Now the SBA has an “open to the public” requirement for lenders. “Unfortunately, SBA has ignored this opinion, preferring instead to limit credit union eligibility to only those with “geographic” charters,” NAFCU’s Flash reads. In its efforts to have the policy overturned, NAFCU has met with the House and Senate Small Business Committee members and their staffs and the Acting SBA Administrator John D. Whitmore, Jr. While credit unions’ SBA participation is heavily restricted, the paperwork involved also can get in the way of the process. NAFCU recognized that the SBA has attempted to streamline the process, but it still involves a lot of paperwork that banks and thrifts are not required to submit. Credit unions can fill an important void for small business owners looking for a small loan but finding that many of the banks are not interested. “Credit unions are known for their assistance to low- and moderate-income people looking to gain economic independence and self-sufficiency,” NAFCU maintained. “By expanding the 7(a) guaranteed lending program to all federal credit unions…credit unions can continue in the tradition of people assisting people, where assistance is truly needed.” NAFCU is also looking for credit unions to contribute “real life” scenarios that support the adoption of the 1976 opinion. The 7(a) guaranteed loan program is the largest through SBA. On loans up to $100,000, SBA guarantees up to 80%, and secures up to 75% of loans up to $750,000, NAFCU explained. The largest loan amount is $1 million and interest rates are fixed or variable at no more than 2.75% over the prime rate. [email protected]