When it comes to the size of businesses that are likely to use the most products and services, credit unions should consider those with annual sales of $5 million or more.

Larry Middleman, president/CEO of CU Business Group LLC, shared that suggestion at the Portland, Ore.-based business lending and services CUSO's National Business Services Conference in Portland this week.

Businesses with annual sales of $5 million or more are far more likely to use loan products such as equipment loans and leases, commercial real estate loans and lines of credit, Middleman said.

Those businesses are also significant users of advanced deposit products such as business debit and credit cards, remote deposit capture, ACH origination and sweep accounts, he added.

“It is clear that larger, more sophisticated small businesses will not only use more services, but those relationships will be considerably more profitable to credit unions,” said Middleman, who leads CUBG, a CUSO that serves more than 460 credit unions in 45 states.

He also noted the strong commercial real estate activity in eight of the 12 Federal Reserve Districts, and that four of 10 small businesses are looking for loans this year.

With this demand, there are a variety of innovative businesses lending options available to credit unions today, he offered.

“From government guaranteed lending to equipment leasing to online working capital loans, credit unions can choose from a menu of lending options to offer their members,” Middleman said. “And all of these allow the credit union to keep the core business relationship while supplementing with additional products and generating fee income for the credit union.”

Indeed, the industry has fared better in business lending. Middleman said member business loans have increased by 44% since 2008 while commercial loans at smaller community banks have declined by over $120 billion or 25%.

Overall, commercial loan dollars at banks dropped 10% between 2008 and 2011, and have now recovered to 2008 figures, he said.

Additionally, credit union charge-offs have stayed well below those of banks.

“Credit unions stayed below the magical 1% charge-off rate for business loans, meaning less than 1% of total business loan balances,” Middleman said. “On the other hand, commercial bank charge-off rates went as high as 2.45% in 2009. Given the difficulties of the recession, this performance by credit unions is quite admirable.”

Middleman also cited examples of how credit unions need to measure performance of their business services products.

“Knowledge of how many businesses are using your credit union's products, and how profitable those products are, is something that most credit unions lack. Another area that needs better measurement is the total profitability of a business relationship,” he said.

He pointed out, “It's rather simple – figure out how to effectively measure performance and then report it to staff, and I guarantee you the results will be positive.”

Instant Insights /

Target $5 Million Businesses for Top Revenue: CUSO CEO

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