With a growing number of lenders continuing to tighten theirstandards, credit unions hoping to grow small business loanoperations may be missing other opportunities to establishlong-term relationships.

Fabio Biasella, vice president and managing director ofstrategic advisory services for Raddon Financial Group, seems tothink that's the case. In a recent National Venture CapitalAssociation survey, 56% of small business borrowers said theircredit lines were tightened in 2008, he said. The trend hascertainly carried over into 2009 with card companies literallyshutting down lines used by many entrepreneurs to keep theirbusinesses afloat.

“For credit unions, here's an opportunity. A lot of them saythey do small business loans when they're actually doing commercialreal estate,” he said. “The delinquency levels on commercial realestate loans are above historical averages. It has stalled manybanks' ability to do additional business.”

For the most part, the credit union industry has fared betterthan banks and other lenders in the commercial lending realm. Theexceptions-many of them billion-dollar cooperatives that may haveoverextended their loan operations coupled with investment instates that are among the top areas for foreclosures-have takendrastic measures to get back on track. It appears that the lendingwoes have led to a shift away from heavy loan concentration tobuilding business deposits and card offerings and cash managementservices.

Raddon wanted to find out how small businesses are coping withthe recession. In a March survey, 30% of participants with annualsales of $500,000 to $10 million said they plan to lay offemployees. Fifty-two percent will freeze pay and 41% plan toeliminate bonuses in 2009. Small business cost-cutting measuresextend to health insurance benefits and 401(k) matches as well.Additionally, 9% of small businesses expect to reduce operatingexpenses by closing or consolidating facilities.

Although many small businesses are cutting costs to cope withthe current economic environment, 18% feel that their annual saleswill increase in 2009, while 37% expect flat sales comparing 2008to 2009. Still, 45% expect a decrease in sales in 2009.

For credit unions, it may mean offering business debit andcredit cards, lines of credit and other nonloan products to helpfill a void left by banks and others that have shutteredrelationships with their former small business clients, Biasellasaid.

“Quite candidly, we're seeing more of a need to developrelationships with small business members. They need workingcapital and a good deposit account. Even if it's something likedeveloping a business credit card, there is more of a need toservice all of the financial needs, not just provide loans.”

Because of their unique needs, credit unions can not assume theyknow what products and services matter the most to business owners,Biasella said. Target marketing may help to home in on which onesare the right fit. Determining what is the financial potential frombusiness debit and credit cards and merchant card services mightalso go a long way to cement relationships.

When it comes to satisfaction and loyalty, credit unions shouldknow that some small businesses may not be loyal to just onefinancial service provider, according to Raddon. Listing the shareof wallet advantages of being a firm's primary provider as well ascomparing consumer and small business loyalty may provide someanswers on why entrepreneurs switch financial institutions. Byfinding out how often business owners use their personal accountsfor business purposes, credit unions can use that to determine whatwhere they should invest in channel upgrades.

According to loan delinquency trends, 30-day loans are now at6.4%, which is up from 5.8% over last year, Biasella pointed out.The delinquency rate has continued to trend upward over that lastfive years. While the figures are not nearly as bad as those in theearly 1990s, “Historically, they're getting up there.” He made thepoint about delinquent loans to reiterate that offering justbusiness or commercial real estate loans may not be the only way togo for credit unions.

“Many credit unions say the quickest way to reach smallbusinesses is through commercial real estate loan participations,”Biasella said. “And, that's fine but you have to be able to manage[those types of loans].”

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