RENO, Nev. – Here's a message for credit unions going into business lending: take it slow, do thorough research on potential borrowers, and make sure you're willing to pay the going rate for the most experienced officers. On one level, "you have to ask yourself if your IT structure has the capacity to support a business loan operation from the start," advised Kevin Lytle, vice president of strategic business development at CUNA in Madison, Wis. And second, "is your organization willing to extend that $25,000 letter of credit to the contractor/member who bought a new backhoe" and now asks the CU's help in bidding on city business, said Lytle a speaker on a breakout session at CUNA's recent annual Future Forum conference here. Lytle, joined by a fellow CUNA staffer, John Hollander, assistant vice president, in conducting the session on "Let's Get Down to Small Business" heard one CU executive detail the start-up cost of a CUSO-based small business department at $170,000. Salaries comprised the biggest share of the expense in a two-employee unit. Another questioner said CUs have to be prepared to withstand salary differences among the lending staff with one executive suggesting that well-trained business loan officers, who come from banks, can "earn salaries higher than the CEO." Is a CU, eager to get into business lending, prepared to deal with this kind of salary discrepancy, the CUNA moderators asked. In emphasizing CUs be prepared to offer a wide range of services, Lytle noted that between 60-80% of business-lending profitability comes from the deposit side and only 20-40% from the credit relationship. Lytle noted that, in targeting the highest potential market, there are 7 million small/home office businesses in the U.S. with revenues between $50,000 and $500,000, and of this group only 14% use a credit union and 67% use a bank. The key to reversing these numbers, he said, is to build the personal relationship with borrowers by visiting their shops on a regular basis initially after the loan is extended and for follow-up particularly "to get through tough times." There also, he said, has to be an adequate number of services being offered and these might include insurance, payroll, human resource support, credit cards and wire transfers. Forty percent of small business owners say a personal relationship with a business loan officer is the most important reason for selecting and staying with a financial service provider, he said, adding "only 20% said rates were the most important consideration." Marilyn Wells, president of Catholic Family Credit Union of Wichita, told the CUNA session that her CU has managed to cultivate a $75,000 brother-sister family business account that ordinarily might have gone to a bank had she not arranged an attractive package on fees. Under the deal, the brother-sister received free checking on the account but were charged fees if the account dropped below a certain threshold, she said noting the duo "did not expect to get such services for free." Hollander noted that most small business owners do not experience a problem obtaining credit but they are "frustrated with the level of service" they receive from banks with high personnel turnovers. Stressing the long-term nature of the industry's position in business lending, Lytle said in future years CUs will need to develop education programs "along the lines of the Stonier School, Georgia Tech or Louisiana State" and others many of which the banking industry has nurtured. "This is a long term thing, but we can grow our own," said Lytle. -
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