With 34 years of experience inthe credit union and commercial banking industries, Larry Middlemanhas seen what works and what doesn't in the business services andlending spaces.

Middleman is founder of and president/CEO of CUBusiness Group LLC, a Portland, Ore.-based CUSO that providescommercial and business lending and deposit services to more than400 credit unions in 45 states.

He recently shared the five biggest mistakes that credit unionsmake when it comes to their business service and lendingprograms.

1. Not capturing the full businessrelationship.

“This is an area where credit unions are not really good at,”Middleman said. “Credit unions do well with mom and pop businesses.They may have a lot of lending needs. Some grow into bigger businesses and some don't.They might just need a business checking account.”

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There are several characteristics that small businesses havethat may make building a business deposit suite appealing to creditunions, Middleman said. Businesses with 30 to 50 employees thathave balances in the six figures and process a lot of transactionsare ideal to court.

A few years ago, deposit services were a sorry state of affairswithin the industry, he recalled. Now, as businesses want more, notoffering such services as remote deposit capture can mean losingout to the competition.

Read more: Expertise …

2. Not having the right resourcesand expertise in business deposit services.

“Credit unions are trying to get there but where they fall offis not allocating the right level of expertise,” Middleman said.“What often happens is (a credit union) will have a good person butthen they're moved over to run the business deposit side. It's noteasy to build up the right expertise to compete with big banks andcommunity banks. If you're not credible or knowledgeable, you'renot going to get a shot at the (business) relationship.”

Having the right expertise is in line with having an edge overthe completion. Middleman encouraged credit unions to accept themission of becoming a primary financial institution – from riskmanagement to profitability from fee income to having a fullpackage of services.

Read more: Annual reviews …

3. Not completing annual businesslending/service program reviews in a timely manner.

“When the examiner comes in and asks 'what are you doing forrisk management,' you can get in over your head. Annual reviewsneed to be an important priority,” Middleman said. “They allow youto find out about business performance before problems happen.”

Middleman said over the last few years, examiners have focusedon risk monitoring and if a business lending or service programdoesn't complete an annual review each year, it will send redflags.

Some of the questions credit unions should ask after thebusiness loan is closed is cash flow from the business stilladequate to cover the debt and does that business's loan filecontain current financial statements, tax returns and othernecessary documents, he suggested. Credit unions should be able todefend their loan decisions with confidence to examiners.

Read more: Strategy …

4. Not putting together a clearstrategic plan.

“With senior management, if you put all the keys to the cars inthe hands of the commercial lending officer just hired, bias may come through.It may take the credit union in a less than desirable direction,”Middleman said. “The plan should be written by senior managementand reviewed and adopted by the board. It should have realisticgrowth projections.”

A strong business program identifies goals and niches and thenextends out to lending and deposits that is customized to the needsand direction that credit union wants to move in, Middlemannoted.

Read more: Due diligence …

5. Not performing appropriate duediligence on participations purchased.

“Examinersare hammering on this. Going on the cheap is another pet peeve.Make sure you do proper due diligence on the lead lender,”Middleman said. “Look at the MBL staff, expertise, policies, level of depth and the type ofloans you're buying from them. What happens if the key personleaves? Is there a good backup?

Middleman said credit unions can manage their member businessloans with loan participations and increase asset yields andliquidity. However, quality control is critical for areas such asparticipation accounting standards, investor reporting and fundsmanagement, and staying on top of participationagreements.