5 Keys to Attracting Business Deposits

Small businesses make up 99.9% of all American businesses and employ more than 46% of private sector workers in the U.S., according to the Small Business Administration. They have also contributed to 55% of net job creation in this country since 2013, according to the U.S. Bureau of Labor Statistics. Yet it’s clear that banks – both large and small – are not meeting the needs of this critical market.

Consider that according to the Bipartisan Policy Center, more than three-quarters of small businesses expressed concern with their ability to access needed capital, and 70% had less than four months of operating cash in the bank.

Credit unions have a unique opportunity to fill this gap by expanding commercial deposits, focusing on small business loans and offering SBA lending as a safe way to serve the critical needs of businesses right in their communities.

I’m excited to kick off this three-part series, in which we offer credit unions a practical roadmap for developing a more effective business services program. Today, we begin with commercial deposits, an essential component of a full-service program.

Why Business Deposits Are Important

Credit unions are in a liquidity crunch, and business deposits can help ease the pain. As of June 2024, credit unions posted a 173% commercial loan to share ratio. Meanwhile, according to the NCUA, credit unions’ overall loan to share ratio was 84% in the second quarter of 2024, up from 83.2% year over year.

Attracting business deposits can go a long way toward reducing loan to share ratios, allowing credit unions to lend more (and more profitably) in today’s higher rate environment.

Commercial deposits also support commercial and industrial (C&I) loans – an area of opportunity for credit unions. Currently, credit union commercial loan portfolios are dominated by commercial real estate (CRE) at 92.59%, compared with only 7.41% in non-CRE loans.

Compare this with the more balanced bank commercial loan portfolios, which on average have only 54% allocated to CRE lending:

Why is this important? Because C&I lending helps to diversify commercial lending portfolios, is less transactional than CRE lending, and fosters long-term relationships. We’ll do a deeper dive into C&I lending in the next article in this series.

Business deposits also help credit unions foster true, long-term business relationships that go well beyond the initial borrowing transaction. Business checking transactional data serves as an “early warning system” for catching deterioration in commercial borrower fundamentals – a red flag signaling a higher risk of default.

Lastly, serving the operational needs of small businesses aligns well with credit unions’ community focus and philosophy of “people helping people.” If small, locally based businesses have access to less costly, more competitive banking services, they can redeploy those savings toward business expansion and hiring, right in the communities credit unions serve.

Challenges to Attracting Business Deposits

Historically, cooperatives have faced a few headwinds in trying to establish business deposit programs.

Number one on that list is technology constraints. Credit unions have traditionally built their business services programs on a consumer product foundation. While this can be a cost-effective approach for cooperatives that are just dipping their toes in the business lending pool, many small and medium-sized organizations require more sophisticated services. Simply duplicating your consumer checking products and expecting businesses to beat a path to your door is not a recipe for success.

In addition, credit unions face more regulatory hurdles than their competition.

The NCUA’s MBL cap has placed a hard limit on the amount of resources federally insured credit unions can devote to commercial lending. This is why many cooperatives have pursued CRE lending as the easiest path forward, eschewing C&I due to its higher complexity, need for specialized expertise and labor-intensive monitoring requirements.

This brings us to another major hurdle: Credit unions’ comparative lack of experience in business services. Serving the needs of the business member is more time-consuming and complex than opening a consumer checking account, and credit unions overall don’t have a wealth of experience in this area.

Specifically, credit unions don’t typically have in-house expertise in treasury management and business deposits. These are specialized skills that commercial banks have cultivated over decades, giving them a leg up on credit unions when attracting and retaining commercial deposit relationships.

5 Keys to Attracting Business Deposits

Yet, all is not doom and gloom. By following these five key steps for attracting business deposits, your credit union will be well on its way to capturing the entire commercial relationship:

1. Assess core system capabilities: Not all credit union cores are created equal. Take the time to assess your current system’s deposit and online banking capabilities to determine whether they can support a full suite of business products and services. If they’re not up to snuff, you may be able to fill the gaps with third-party solution providers that integrate well with your core. Leverage the expertise of an experienced and credit union-bred advisor to maximize your current system capabilities and recognize opportunities for enhancement.

2. Hire or outsource the right talent: Once you have your technology stack in place, it’s time to assess whether you have the right talent on staff. Start with your current roster and look specifically for past business deposit and treasury management experience. Then fill in the gaps with strategic hires from the community banking world.

3. Mine your data for opportunities: It’s likely you already have local business owners and community leaders as members of your credit union. But if they don’t know you offer business deposits and loans that can rival those of community banks, they will never consider your commercial services. Dig into your existing relationships to find areas of opportunity and create an outreach campaign to these top candidates and influential members.

4. Offer the right product mix: The size, type and sophistication of the businesses you want to serve will determine the exact mix of deposit products you should offer. To begin, make sure you are offering basic business checking, savings and money market accounts along with debit and credit cards. Next, consider offering ACH origination, true business remote deposit capture (RDC) and a dedicated business online banking solution to meet the needs of larger organizations.

5. Leverage your existing relationships in the community: Whether your credit union has a SEG-based or community field of membership, your people already have strong relationships within the local business ecosystem. Now is the time to leverage those connections and define the markets you wish to prioritize. Look for underserved areas that fit your cooperative’s mission and growth goals. Then tap into your staff already in the community doing business development, volunteering and outreach, and train them on your business deposit products. Set them loose growing those connections!

Building a robust business deposit program is a crucial step for credit unions looking to grow their commercial lending portfolios. Deposits help provide the liquidity to fund these loans and enable credit unions to offer a full suite of products to business members. In our next article, we will share why offering commercial and industrial (C&I) loans is another critical component of a well-balanced business services program. Stay tuned!