Business loans are a natural choice for credit unions' survival given their close relationships with members and community ties. And more Americans are starting small businesses.
Business owners typically don't look to credit unions for their financial needs. Executives often tell me that nobody is coming to their credit unions for business loans. When asked what they are doing to let members know about their program, they reply: statement stuffers. This doesn't cut it. You have to hustle for the business, something credit unions are often reluctant to do.
Within two miles of most branches there are 1,800 businesses with $80 million in deposits and $130 million in loan needs. Understanding the mindset of an entrepreneur—a risk taker—is essential. Running a business in good times is easy, but managing a business during a recession isn't for the timid.
Banks tend to have bureaucracies geared toward providing credit to large businesses; small enterprises are ignored. Some 80% of all businesses are discontinued in 10 years, but the 20% that survive can evolve like Apple and Microsoft, which had modest beginnings. Get in on the ground floor with the next Google.
Business loans take more care and feeding of the borrowers than consumer loans and are usually long-term. Business lending is also more analytical; future business needs and viability are based on using data and projections.
While considering business loans and services, your credit union can either join a CUSO or develop a department in-house. There can be considerable savings with a CUSO since you pay only for the services used. Developing a business lending department can be expensive as a skilled staff is difficult to find.
Regardless, you'll need at a minimum one business development officer to head the department. If in-house is chosen, typically four to six employees are needed with diverse skills, including:
- Risk assessment includes assessing risks involved with the business as well as the capacity of the business to repay the loan.
- Marketing differentiates the credit union in the business community. Being able to reach out and attract business and use analytics to develop strategies.
- Business monitoring and review requires an understanding of the nature of the business and its unique needs. You'll need to understand the vital signs of a sound-performing portfolio of business loans and the ability to monitor and identify risk areas.
- Portfolio administration involves managing a portfolio during negative conditions. Equally important is the talent to manage a profitable portfolio and structure transactions to meet the borrowers' and credit unions' needs.
- Relationship building is one of the critical competencies as business lending is based on trust and keeping regular contact with business owners. This requires an outgoing, warm person to work with a range of folks.
Credit unions sometimes hire one person to perform all functions, which is a recipe for ruin. It's rare for one individual to possess all of the needed skills. The cost of these professionals can be expensive, so the credit union will need to push volume to meet the overhead, but owner-members will pay for quality services.
In addition to loans, the business lending department should offer a variety of services, including checking accounts, business credit cards, revolving lines of credit, debt refinancing and business acquisition.
Business lending can be a challenge, but credit unions have a mission to provide products and services to their member-owners and, by doing so, help the American economy recover. n
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