CARMEL, Ind. – The exchange of best practices among credit unions can go a long way within the business loan origination process in almost any area from the level of staffing to decoding what are acceptable delinquency rates. Baker Hill Corp., a business lending origination provider, recently published its first Small Business Lending Benchmark Study for 2004 to capture some of the best practices. The study is based on electronic surveys of Bank2Business clients – financial institutions that use Baker Hill's hosted small business origination service. Fifty-nine banks and three credit unions participated in the study and additional information was supplemented by the Bank2Business database, which includes more than 95,000 small business applications and 145 banks reflecting more than $9 billion in loan requests. Data was collected from a Sept. 20, 2003 survey. The respondents were grouped into five tiers: $20 billion to $100 billion; $2 billion to $20 billion; $500 billion to $2 billion; less than $500 million and credit unions. "Much of what we were hearing is `what is everybody else doing,'" said Joel Pruis, Baker Hill practice manager, credit origination. "We realized that we had been sitting on a gold mine of data and we could supplement with subsequent data." While credit unions were a small segment of the study's respondents, the lessons that might be found from commercial banks can be valuable ones, said Pat Spencer, Baker Hill's credit union solutions manager. "The sample size will continue to grow and credit unions can really parlay what they learn on the commercial business lending into their programs," Spencer said. Among its findings, the study revealed that the average amount of a small business credit request is $57,000. With a 4% net interest margin, that loan amount will generate a maximum of $2,280 in revenue. Among the respondents, credit unions had the highest average request at $103,000. Larger institutions typically offer an unsecured line of credit product for requests of $50,000 or less but generally the larger the financial institution, the smaller average request size, the study said. The average portfolio size of the banks and credit unions surveyed was $65.7 million with the average outstanding loan production at $15 million per year, the study showed. For credit unions, the average portfolio size was $16.7 million with the average age being 48 months. Product offerings ran the gamut. One hundred percent of respondents offered a line of credit and term loans. While the SBAExpress "is a better match for the small business lending process because of its reduced documentation and because it permits underwriting without the use of financial statements," only 31% were actually using it compared to more institutions that were using other SBA products. Not surprisingly, credit unions were the highest users of SBA Express at 67% but tied for last place at 33% with banks in the $20 billion to $100 billion tier for users of other SBA products. As for who's managing the small business loan portfolio, a relationship manager is in charge most at 43% followed closely by a dedicated portfolio manager at 40% and an underwriter at 17%. Delinquent loans are impacted by who is managing the portfolio, according to the study. The best delinquency performance came from the financial institutions that had their underwriters managing the portfolio, followed by the dedicated portfolio manager and the relationship manager. Credit unions had the highest percentage of delinquent loans at the 90 days past due range at .94% but overall, were among the lowest in the 30 days and the 60 days past due brackets. They also were among the lowest for charge-offs behind banks with $500 million or below in assets. While credit unions had the lowest annual application dollar amount at $96,000, they had the highest average application size in dollars at $191,000. "Credit unions have been more aggressive" compared to their commercial banking colleagues, Spencer said. "They've done very well in the automated process and they're more apt to pursue automated decisions." Most study respondents did not require financial statements for new loan requests with the exception of banks with less than $500 million in assets. Sixty-seven percent of credit unions did not ask for statements, according to the study. Regarding the turnaround times for loans, Baker Hill's Bank2Business captures the start and stop times for the various activities within the application process. Weekends were included at the time of the survey but since weekends and nights were eliminated from Bank2Business and not all clients started using the new "business clock" at the same time, a consistent measurement may be hard to pinpoint. Credit unions had the fastest data entry turnaround time at four hours and 30 minutes on term loans and were ranked second behind banks in the $500 million to $2 billion tier (nine hours and 29 minutes) at nine hours and 57 minutes. The total turnaround time from data entry to final decision revealed a different story. Credit unions ranked last with term loans at six days and four days for lines of credit. Spencer said Baker Hill is in the process of putting together a survey for the 2005 version of the study. "The size of the credit unions (and CUSOs) in the study may vary but what doesn't vary is the size of portfolio," said Spencer. "As large credit unions began to roll out their programs, volume will increase. It's an evolutionary process." [email protected]