PALO ALTO, Calif. – Stanford FCU has shored up a reputation among its members for offering mortgages and auto loans and creating high-tech electronic delivery systems for their convenience. Having reached that point, says SFCU CFO Mark Lovewell, "Now is the time for us to put the frosting on the cake and serve the financial services needs of our members in the business arena." Last month the $400 million Stanford FCU introduced its Business Connect Program designed exclusively for small to mid-size companies in the Stanford/Palo Alto community. Marketing studies conducted by SFCU showed that even though there's a concentration of occupational groups like attorneys, dentists and small high tech and software companies in the Stanford/Palo Alto area, SFCU had never really addressed their business needs. SFCU also saw in its field-of-membership another market that needed to be addressed – university and graduate students at Stanford University who graduate each year and are looking to start their own business. "We want to be relevant, to have our members bring their business relationships to us so we'll be their primary financial institution and have a certain stickiness with that member for life," says Lovewell. Stanford FCU has 40,000 members and counts within its FOM members of the Stanford Chamber of Commerce that includes about 800 businesses, as well as businesses and firms that operate on real estate in Palo Alto that's owned by the university. These include small businesses with $5 million or less in sales with 20-25 employees, as well as larger firms with more than 100 employees. "During the last 40 years, we've made billions of dollars in loans for homes and automobiles; we've created numerous electronic delivery systems, and have always provided solid returns to our members," says Lovewell. While SFCU has offered business savings and transaction accounts, several business loan programs, merchant services and other services for business people, the credit union's new Business Connect Program goes a step further. Stanford FCU plans to offer member business loans through the Business Connect Program, but the CU's primary target is a deposit relationship. Lovewell says the program's emphasis will be on "growing business deposits." Among the new services being offered are business checking programs linked to credit lines, a money management savings account with tiered dividends, merchant banking services, commercial loans and credit lines, and several small business resources and benefits. Lovewell says the credit union wants to offer the businesses the same type of cash management services they'd get from commercial accounts at another type of financial. "There is an under $500,000 business market on the Peninsula that's totally underserved. The community banks have elected not to get into making loans and doing business with this market because of the cost of making a small loan. Besides, the credit decisions for a lot of the community banks have been centralized and there's a shortage of loan officers in the field," says Lovewell. "While the community banks are fighting over a $500,000 business loan, they're ignoring that market's need," says Lovewell. Even a credit union the size of Stanford FCU appreciates the cost of operating a business program like the Business Connect Program totally in-house, so the credit union has elected to outsource some of the activities it will offer. SFCU has partnered with NOVA for merchant banking, with WesCorp for ACH origination, and PSEU for corporate business cards. It's also working with Counter Intelligence Associates for small member business loans, and with Telesis Community Credit Union for commercial real estate transactions. "We'd rather have key partnerships rather than try to do it all ourselves," says Lovewell. Internally, the credit union has hired a risk manager with commercial banking background. At some point down the road, Lovewell says there's always an opportunity for SFCU to reassess the services it's outsourcing and bring them inside the CU. Lovewell says SFCU did a profitability analysis before it launched its Business Connect Program, and based on the findings he's not concerned with the probability the program will be successful. It showed that, "even given that if we get non-interest fee income and deposit account from smaller businesses, we're still taking 1.75-2.00 ROA." -

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