My youngest recently graduated from college and now has a full time job (sigh of relief). She is now faced with the need to change her account from college checking to regular checking. I told her she may need to stop by a branch to make the change. She responded as if I had asked her to walk barefoot across burning coals. Visit a branch? That's absurd!
And so it goes for the next generation of members for credit unions. Banks are closing or planning to close branches on a regular basis. SNL Financial reported 332 branches were closed during the first quarter of 2015. Bank of America recently stated it had closed 1,400 branches as of June 2015. JP Morgan reported in February its plan to close 300 branches. The reason is the rise of mobile banking capabilities and a customer base all too eager to use them.
How does this impact small business members? The old rule of thumb was that 60% of your small business members would be within two miles of your branch, and within a five mile radius it would cover 90% of your small business members. Branches used to rule the small business segment! But given branch closures, how are we addressing access to small business credit?
In 2006, I visited the websites of the top 10 banks by asset size to see if I would be able to submit an application for credit. At the time, only three of the 10 had online functionality that enabled a business owner to actually submit an application for credit (not fill out the form, and print and fax the application). Only one of the three would accept an application for something other than a credit card, but the application process was long enough to discourage most applicants.
Fast forward to 2015. With all the branch closings, I decided to repeat but expand the assessment. I looked at three categories of financial institutions: Top 10 banks by assets size, top 10 credit unions by asset size offering member business loans, and 10 banks of similar asset size to the top 10 credit unions (to see if size really matters). Of the 30 financial institutions, only two allowed for an online application for a credit product other than a credit card: Wells Fargo (existing customers only) and San Diego County Credit Union.
Given the plethora of alternative lenders that only take applications online (e.g., Lending Club, Kabbage, OnDeck), the idea that we continue to push our members to call, fax or actually visit a branch to apply only serves as a competitive obstacle. Consider these seven ways to better serve your small business members' credit needs:
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Start small and identify an appropriate dollar range (say up to $50K).
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Offer online applications – at least to existing members.
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Auto-populate the app for existing members from your online small business platform.
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Assign a resource to process the applications. Know that the bulk of the applications will likely be submitted during off-hours.
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Communicate the expected response time up front (24 hours, for example).
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Provide an immediate confirmation to the member that the application was received.
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Provide at least a conditional decision before asking for more information. Initial review can be as little as: Membership eligibility, credit score of the principals/guarantors, business credit report, or no reported past dues on bureau reports or existing loans with the credit union.
Even if the entrance to your branches doesn't lead to a pathway of burning coals, realize that it may seem like it to this new breed of small business members. Now is the time to kick off a strategy that takes the burn out of small business servicing!
Joel Pruis is a senior director at Cornerstone Advisors. He can be reached at 480-424-5842 or [email protected].
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