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Aggressively seeking the membership of small businesses has not traditionally been a strategy for most credit unions. In fact, though financial institutions of all types and sizes increasingly recognize the potential revenue associated with winning the business of this segment, only approximately 8% of U.S. small businesses consider a credit union to be their primary institution. Several opportunities exist, however, for the 45% of credit unions that Aite Group estimates are likely to adopt a more commercially focused strategy during 2010.

Perhaps one of the greatest opportunities for new member growth is among small businesses, a segment hit particularly hard during the financial crisis. One of the greatest challenges currently faced by small businesses is gaining access to the funds necessary to finance their day-to-day activities and stay afloat in the current economic environment. The financial crisis and resulting recession have led many institutions-especially the largest ones-to tighten their credit policies. Fewer small business loan approvals by banks resulted in the Small Business Administration backing 36% fewer 7(a) loans during its 2009 fiscal year than it did the previous year. Further, all but one of the SBA’s top 10 lenders in 2008 (Wells Fargo) decreased their 2009 volume of SBA loans by at least 30%. This creates new opportunities for credit unions that have been able to maintain, and in some cases increase, their loan origination volumes throughout the last two years as a result of conservative lending practices and avoidance of subprime lending. Since most small business-financial institution relationships begin with a credit product, the potential for credit unions to attract new members through lending has increased, despite the legal limits credit unions have on member business loan volumes.

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Peter Westerman

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Credit Union Times

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