Niche Helps Cross Valley FCU Form Alliances Banks Shun
The member looking for a $30,000 line of credit or financing for a delivery truck–that’s the kind of small business owner Cross Valley FCU is actively courting.
The $156 million cooperative in Wilkes Barre, Pa., is convinced it has found its niche nearly five years after starting a business services program. Cross Valley representatives went out into the community to talk to small business owners located within a three mile radius of each of the credit union’s branches. More business deposit accounts started to open followed by loans, which had not been a strong offering in the past, said Leonard Shimko, president/CEO. The credit union now has approximately 300 business members, with loan originations topping $190,000.
"We saw that business lending not only afforded us the opportunity to help our members who own small businesses but also to grow and reach out to a niche in our community sometimes overlooked by other lenders," Shimko said.
In 2009, Cross Valley began what it called its Member Business Solutions program. To help find the best market niche for serving small companies, the credit union said it turned to business adviser Impel Consulting Group, a CUSO owned by Mid-Atlantic Corporate Federal Credit Union and a number of its member credit unions. Impel set up meetings with local businesses to assessed their interest, arranged for training and prepared the staff, and assisted with policies, procedures and documentation.
"We concentrate our efforts in a niche–business members that the banks don’t want to bother with because they are smaller," said Dave Reed, the credit union’s vice president of lending and Member Business Solutions. "Our niche is smaller than the banks, usually people who have three or four employees. But we’ve also added a lot of members who don’t want to deal with the banks anymore–either because the banks cut them loose when the economy was down or their fees are just too high."
Reed said most business loans made by credit unions are relatively small, but the impact can be huge. Cross Valley helped a Hazleton, Pa.-based door company grow from two partners to having enough employees to have a $1 million annual payroll. A Hanover Township, Pa., hair salon that got its start with just the owner now has three employees thanks to the credit union.
Forming relationships with businesses has also helped Cross Valley to cross sell other products and services. Shimko said a lot of the employees of its business members have joined and have signed on with mortgage refinancing, checking, savings and auto loans.
Shimko said serving a niche is how Cross Valley stands out from its competitors.
"We don’t want the big clients because we can’t handle them. They want the big loans and we can’t do that. We’re not into loan participations. We see those coming in wanting a $30,000 or $40,000 line of credit or they might want a delivery truck. That’s our bread and butter."
Shimko acknowledged that while these accounts do not bring in a significant amount of money each day, there is enough funds in them to make it worth while.
One Impel service set up to help hone in on niches is a credit union financial plan that details strategic planning, asset and liability management, member demographics and identifying if there are any risks to offering a business services program, said Jay Murray, president of Impel and Mid-Atlantic Corporate. One other critical piece is staffing. While Cross Valley did not hire additional staff specifically for its small business services, the credit union did open a branch where Impel’s research showed many interested small businesses were located.
Meanwhile, Shimko is among the many pushing for raising the MBL lending cap. Loans over $50,000 require a yearly review, a process that involves underwriting and an appraiser if it is rental property, he said, adding the expenses involved on these smaller loans can be overwhelming. Shimko wrote to Congress to get MBLs raised to $250,000. That higher threshold along with the raised MBL cap would cut down on expenses and clear the way for credit unions to make more loans, he proposed.