The pace of small business growth has been unprecedented over the past few years. Small businesses employ nearly half of the U.S. private payroll, accounting for nearly two-thirds of job growth since 1993.
Credit union CEOs and boards not offering business services currently are evaluating the opportunity to serve these members as part of their strategic planning. The opportunities for profitable growth from offering small business services are generally outstanding, as these members tend to be the most loyal and profitable to the credit union.
Loan Growth—In addition to contributing to the credit union's balance sheet growth and profitability, business loans enable the credit union to have a more diversified loan portfolio. This can improve profits and lower risk in the long term.
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Deposit Growth—Growth and revenues for business deposits and cash management products often outpace business loans in credit unions.
Personal Products/Services—Business owners tend to move most or all of their personal deposits, consumer loans and real estate loans to the institution that meets their small business needs. As a result, the total relationship is very profitable and is sustainable.
New Select Employee Groups— Although many credit unions have moved to community charters, adding SEGs is still an excellent marketing and sales strategy. Credit unions that offer business services have a new source for adding SEGs and building lasting relationships. Even if your credit union has a community charter, SEG relationships offer the least expensive, most rewarding means of direct marketing.
If your credit union is not already providing services to small businesses, evaluating this opportunity can be part of your next strategic planning meeting. The facilitator can open the session by providing a review of the strategic analysis and present research that includes both external and internal considerations as the foundation to evaluate the opportunity.
External Considerations
The external analysis should include various trends, driving forces and other factors that will influence the organization's direction and goals. External considerations may affect your decision to offer business services, or provide insight into how to offer the service while mitigating risk and maximizing service to members.
A few statistics offer proof.Small businesses employ 44% of U.S. private payroll and generated 65% of new jobs over the past 17 years.
New small businesses use owner equity for financing but receive about three quarters of their funds from banks.
Banks are not meeting the needs of many small businesses. Consolidations have alienated many business customers. Despite an increasing need, bank loans to small businesses have declined recently. Community banks under $1 billion in assets have been weakened by high-risk construction and commercial real estate loans. As a result, many cannot meet the needs of a growing small business market.
Effective July 21, 2011, Regulation Q, which prevented banks from paying interest on business transactions, is no longer in place. This presents an opportunity for credit unions, as banks will be reluctant to change their pricing.
Technology advances allow small businesses to complete their transactions without visiting a branch. This allows credit unions to compete while keeping costs down.
CUNA is urging Congress to increase the member business lending cap to 25%, projecting the creation of 125,000 new jobs. Low-income designated credit unions already have an MBL exemption. Rules to obtain an LID recently changed. Credit unions previously ineligible using the standard process can now use member income verification.
The internal trends analyze strengths and weaknesses unique to each credit union. What follows is an analysis of the overall credit unions industry. Your team's work will provide specific data to include for your strategic planning meeting. Consider the following:
Overall Growth
Membership growth continues to be slow and was only 0.7% in 2010. Deposit and loan growth declined from the prior year with 4.4% deposit growth in 2010 and a negative 1.2% loan growth in 2010. The loan to savings ratio declined from 82.3% in 2006 to 72.2% at year-end 2010.
Loan Growth
Growth in member business loans outpaced all other loan categories each year since 2006:Growth in other categories was low or negative in 2010:
Chuck Cockburn is president of Credit Union Strategic Planning.
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