A "Personnel View" of Member Business Loans

Many credit unions are looking for a “quick fix” to offer Member Business Loans. That translates to simply hiring an ex-banker looking for a new lease on life and telling them to run with it. That’s the thinking we’re seeing. In many credit unions, and (it’s scary!) it’s not just smaller credit unions who are taking short cuts. Recently I was talking with the SVP of lending at a credit union with more than $1 billion in assets about the planning he did prior to their starting a member business lending department. I asked him if he would send me his business plan. . It was one page long. The entire plan can be summarized as follows: 1) Hire an experience business lender, 2) Generate $50 million in member business loans in the first year. In an effort to alleviate this situation, in early 2003, CUNA’s Center for Research and Advice invited a small group of experienced credit union business lenders to meet in Madison to share ideas and discuss the challenges faced by business lenders in the credit union movement. The biggest risk a credit union can take when starting a business services program is to try and be all things to all members-but if you are determined to try, then at least have the experts on staff! Most credit unions simply can’t handle providing all of the services small business need immediately. And to try is most times to invite failure. And while true of any service you provide, it is especially true of business services. You must do it better than your competition-measurably, demonstratively better. Credit unions need to prove that they really offer a “difference,” and that being a member means being unique. Business owners must be shown what makes credit unions different than other financial institutions. There has been a significant amount of discussion within the credit union movement about the benefits of originating member business loans and providing related business services. Naturally these discussions eventually turn to basic bottom line considerations: what are the service and profitability benefits of offering member business services; and conversely, what are the pitfalls and costs? If you determine that the market opportunity exists to offer member business services, the next step is to educate the decision makers at your credit union as to the economics and other strategic considerations involved in this line of business. The “buy-in” of the Board of Directors, senior management, and credit union staff is vital to achieving success with a member business services program. In any case, you will not want to offer any product or service that you do not fully investigate from both the benefit and cost sides of the ledger, understanding the implications of both and how they fit into your credit union’s overall strategic plan. In general, due to the risks involved, a member business lending (MBL) operation requires a higher degree of focus and attention than most other arenas in which a credit union may choose to operate. As in any complex operation, there is risk in providing inadequate management focus and/or inadequate levels of competence. An MBL operation requires competence and quality staff at all levels. There is danger, even with competent leadership, of delegating too much too soon to unproven staff or relying on unproven processes or even unproven underwriting parameters. Most credit unions looking to establish a member business services department, particularly one with a lending component, will need to turn to the banking industry to find the expertise required to make small business and small business loans. Experience here counts. Most credit unions find that they require someone with at least five years business lending/service experience-the more the better. An important caveat: sales experience is highly beneficial, but it is not enough. A member business services leader must also have hands on experience with multiple facets of the operation, particularly if you are asking them to build a department. These professionals often come at a significant cost in terms of salary, benefits and bonuses-and even then can be difficult to find. In the current environment, a community banker may be the right choice for a credit union start-up. Why? Because these professionals often have more experience as a full service banker. Also, they may have more of an affinity for the culture and mission of a credit union than someone from a larger banking interest. According to the 2003 CUNA E-Scan Complete CU Staff Salary Survey report, the average member business loan officer’s salary is $40,527 ($46,189 at CU’s over $400 million in assets); with average incentive pay of $2,373 and an average bonus of $1,304. However, in many markets you can expect to pay over $100,000 in salary for an experienced business lender. When you finally identify a candidate that seems to fit your needs for running your business services operation and you bring them aboard, your first job is to identify a successor and begin training them! Why? Because banks are turning out fewer and fewer bankers with well-rounded experience, and when the opportunity is available to train someone from your own staff to be a business services leader-carpe diem! Pressures on any new product or service a credit union offers, including business services, that originate within the credit union itself are internal forces. These forces are the primary challenges within a credit union that stand in the way of succeeding with a new product or service. In most instances though, these internal forces can be given a single label: resistance to change. If your credit union decides to become involved in business services, particularly lending, you may find that you create an unintentional rivalry between your consumer and small business lenders who often see their functions, standards and compensation as incongruous. The key to controlling or blunting these forces is the knowledge that they are within your ability to control! And how do you exert that control? By a thorough job of due diligence and explanation of the goals and expectations of entering a new business, such as member business services. A fair, open investigation of the needs and potential success of a member business services operation should be open to all affected employees. That is the surest way to allay fears and overcome a huge portion of everyone’s resistance to change.