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A family farmer needs a $90,000 loan to buy the fans that cool his chicken coop. A couple needs a small-business loan to $____ sturn their home into a bed and breakfast. Another couple seeks $175,000 in capital for their growing house-cleaning business. A gym owner is hoping for a Small Business Administration-guaranteed loan to expand his small facility. These examples have three things in common: The borrowers were turned away by banks, they went to their credit union for help, and the credit union approved their member-business loan application. These are the kind of real-life examples I hear about from members of the CUNA Business/SEGs Services Committee, which I chair. They illustrate why having the ability to provide small business services is so important for credit unions. It’s not surprising, given that credit unions’ focus has traditionally been on the smaller end of the business loan market. But this is also the market segment most often turned away by other financial institutions. And so they’re the kind of examples our committee has been talking about in meetings with regulators, key members of Congress and in the news media. To be effective credit unions must have the flexibility to meet the changing needs of their members. This is especially true for those who desire small business services. Grace Mayo, CEO of Telesis Community Credit Union in Los Angeles and a member of our committee, notes the distinction this way: “This is not like a consumer loan-you are talking about a member’s entire life.” Her credit union made the loans that enabled the gym owner and the couple with the housecleaning service to grow. The demand is there, and so is real opportunity for credit unions. Today more than 25 million small businesses operate in the U.S., creating more than 70% of the nation’s new jobs. Yet credit unions are the primary financial institution for less than 0.1% of small businesses. Meanwhile, more than 64% of small businesses say the service they receive from their primary financial institution is sub-par. The problem was highlighted not long ago in an American Banker article (“Small Biz Pitch Falls Short in Many Branch Visits”), where in “mystery shopper” visits to 10 New York city bank branches in search of a small-business loan, service was found wanting nearly every time. “During only one of the 10 visits did anyone ask us our names or for a business card so that someone could follow up with us,” noted the American Banker reporter who tagged along. “In all the other instances, we were encouraged to come back or to place a follow-up call ourselves, which effectively put the sales process in our hands.” In the same vein, a TowerGroup analysis found only 39% of small businesses report having been contacted by a financial services provider to sell them services, and usually the product being marketed most often is a credit card. By contrast, credit unions are in a great position to offer small business services because of their unique relationship with their members. In addition to loans, there is strong demand for depository services. The use of cash management accounts is increasing, and small businesses are heavy users of ACH payments and wire transfers. Here, too, small-business entrepreneurs are looking for more affordable alternatives. According to the California Small Business Research Project, banks set their business deposit account service charges higher than their consumer service charges. While banks often have the convenience of more branch locations than credit unions, this advantage will mean less as more consumers and small businesses make greater use of online banking and other new technology. Meanwhile credit unions have the continuing advantage of their reputation for better overall service. Yet hurdles remain. Part of it is hiring and training the right people. Another part is increasing regulatory understanding and acceptance of this important market. In terms of training and education, the CUNA Small Business/SEG Services Committee already has put a host of free resources for credit union use on the CUNA Web site. The committee is now considering establishing voluntary documentation and underwriting guidelines for credit unions to use when establishing their member business lending policies. Our aim is to make it easier for credit unions to bundle their MBLs with others so that they can be sold on the secondary market. Our committee also has volunteered to serve in an advisory capacity to NCUA. We believe advice and guidance stemming from credit union experience with small business services can enhance the agency’s own examiner training program and create a better understanding of the practical challenges credit unions face in offering these services. Now, for example, credit unions sometimes find themselves in a sort of Catch-22 situation. NCUA requires such a high level of infrastructure, a credit union feels intense pressure to make a large push right out of the gate in order to offset startup costs, yet then runs the risk of too quickly coming up against the statutory 12.25%-of-assets member-business loan threshold. We would like to see a regulatory approach that would grant credit unions greater flexibility to enter the business services market gradually if doing so makes the most strategic sense for the credit union. I’m pleased to say that the committee’s meetings with NCUA Board members and senior staff have been encouraging. Another regulatory hurdle that must be noted is the SBA’s unwarranted exclusion of many credit unions from its 7(a) loan guarantee program. This is something the Business/SEGs Services Committee, CUNA and others have made it a priority to address in meetings with SBA Administrator Hector Barreto and the agency’s general counsel. We’ve argued the SBA must reverse its current interpretation and return to an earlier standard that ensured against unlawful discrimination while recognizing that credit unions fully serving their lawful fields of membership are “open to the public” and therefore eligible for participation. Just this past week, new and positive statements have come from the SBA that are cause for optimism. In response, CUNA President Dan Mica welcomed the positive rhetoric but urged the agency to act now to expand the capacity for credit unions to participate in SBA loan programs. A clear opportunity exists to assist members of credit unions who own small businesses. Proper preparation and training at the credit union level is a must. Closer collaboration between credit unions and federal agencies can ensure small-business needs are met without compromising safety and soundness. While there is more to be done, progress is being made on both fronts.

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