"Over the years, it became obvious to me-and I was guilty of this too-we were charging credit unions for all of the income that was being made from the CUSOs," Hales acknowledged. "We're pulling money out of the credit union when the CUSO should be getting the revenue from the small business owner, who is more than willing to pay for access to credit."
To that end, Hales launched Small Business America LLC (www.sba.coop), a new CUSO that connects credit unions, service providers and small business owners. In addition to member business loans, deposits and business services, linked services will include commercial mortgage and title services, insurance, investment, business owner financial management training, succession planning and more. Small Business America is the operating name for Member Advantage Brand of Companies LLC, a subsidiary of CUSO Development Co. LLC.
Credit unions typically pay fees to invest in a CUSO, fees to provide services to another credit union and other monthly costs, Hales said. Small Business America will pass the costs on to the small business owner so that smaller credit unions interested in launching a business services program can afford to do so without having to join large, multistate or regional CUSOs, he added. The new entity will earn revenue from borrower-paid commercial loan fees, loan servicing fees and loan participation management fees.
"I still think business services are the way out of this mess," Hales said of the nation's lukewarm economy. "There are 5,000 credit unions that don't generate business loans. This can bring in really nice loan returns and income."
Hales is well aware of what it takes to launch CUSOs. As a partner with The Rochdale Group Inc., a provider of management and financial consulting services, he has built more than a dozen member business lending CUSOs over the past few years. A NACUSO board member, Hales has also been an advocate of collaboration and innovation within the credit union industry. The financial services veteran has commercial lending experience on the banking side having served as a commercial loan officer, branch manager, trust officer, sales manager and regional administrator for several large banks before becoming president of a community bank. Before Rochdale merged with Counter Intelligence Associates, Hales was president of the strategic planning firm.
With Small Business America's launch in August, Hales, who will serve as president/CEO of the CUSO, set out to get credit unions deep in the trenches of the small business community. There is certainly a need to link the two industries. Most new businesses, at least 50% by some estimates, fail within the first five years of operation simply because they run out of cash, Hales pointed out.
"There is a huge need for financial literacy for small business owners. If they have fewer defaults, they wouldn't have to rely heavily on debt."
Small Business America plans to offer online training to entrepreneurs on understanding and managing their businesses' finances. Similar sessions will be held for credit unions with an emphasis on basic analysis. Hales recalled how successful such workshops were when he worked for as a senior consultant for Moss Adams LLP, a top accounting firm. Small business owners walked away armed with tangible knowledge on how to keep track of their cash flow.
"One thing I hear CEOs complain about is they don't know how to help credit unions fill the pipelines. We don't equip them to be able to sell to business owners," Hales said. "We've kind of pushed all of the burden on credit unions."
The CUSO's executive offices are based in Mission Viejo, Calif., and administrative offices in Ada, Mich. Regional loan productions will set up in key small business markets throughout the country, Hales said. Each of those will function as a back office credit department providing financial statement analysis and credit underwriting, loan documentation, loan servicing and participation management services for multiple credit unions. The regional office will be staffed with a regional vice president, a Small Business America employee, with experience in providing commercial loans within that local market. Additional staff may include a credit administrator and credit analyst. Hales said he is in talks with credit unions in New York, Tennessee, Virginia, Massachusetts and Washington on setting up regional offices.
Hales said the CUSO will look within the industry first for partners, but if the right match can not be found, he is open to searching outside of the movement.
"We want to help CUSOs expand. Regardless of what happens to the member business lending cap, we need to get more credit unions involved," Hales explained.
The timing could not be better. Hales joins a growing chorus of leaders in the industry encouraging credit unions and CUSOs to make their presence known among frustrated bank customers and small business owners. The economy's recovery, he again touts, is hinged on connecting with the small business market.
"There are 26 million of them out there. Banks are not lending and those that are, are dribbling back in," Hales said. "Most small businesses don't know they can join a credit union. I need to do all that I can to change the notion that credit unions are a best-kept secret."
And, about the CUSO's Web site domain, www.sba.coop, which rings similar to the Small Business Administration's site, www.sba.gov? Hales said he "just lucked out that no one else had reserved the name."