'Loans Are Great,' But Deposits, Holistic Approach to Reach Small Businesses Helps Propel CU Business Capital

LINTHICUM, Md. — Prior to launching a full suite of business services and loans, State Employees Credit Union of Maryland's lineup of piecemeal offerings was just enough to appease members who sought them out.

But as demand for a more extensive range of services increased, the $1.7 billion credit union knew it was time to branch out, said Rodney Staatz, president/CEO.

“We weren't able to provide services at the level we thought we should plus we also believed that there was a vast market, which at times, some banks had chose not to do business with.”

A little over a year ago, SECU became the second credit union to become a co-owner of CU Business Capital, a CUSO launched in July 2005 by $2.1 billion Eastern Financial Florida Credit Union. The CUSO offers cash management services, deposit accounts, e-banking, credit cards, business loans, consultation services, training programs and one of the newest offerings for the credit union industry, remote deposit capture. At press time, CUBC was in the final stages of signing its 30th credit union client. Its loan portfolio is approaching $400 million and business deposits accounts are hovering around the 10,000 mark, according to Murray Halperin, senior vice president of marketing and business development at CUBC.

During SECU's search, it was critical that the CUSO have the right expertise and a vision that went beyond business loans, Staatz said.

“We looked at a handful of CUSOs. Most did business lending but we didn't see anyone doing business deposits extensively,” Staatz recalled. “It was important for us to be a one-stop shop.”

In 2006, SECU had roughly $18 million in business deposits and expects to hit $23 million this year, Staatz said. Over that same period, business deposits almost doubled from 2,300 to 4,500 expected by year-end. On the lending side, the credit union closed on $10 million in business loans in 2006 and is on track to end 2007 at $25 million.

“What we're finding is when we price out on the loan side, we're recouping on the deposit side,” Staatz said. “What they're paying at the banks versus what we're charging is two-thirds to half of what we're paying.”

It's that competitive edge pricing coupled with its continued focus on helping credit unions build on the business deposit side first that has helped CU Business Capital's two-year growth spurt, Halperin said. Indeed, CUBC's parent, Eastern Financial Florida CU, surpassed the $200 million mark in business loans in April and business deposits grew roughly 50% from 2005 to 2006 to $20 million, according to the CUSO.

“Instead of relating to the community with just consumer products, we like to think we're transforming what credit unions are by offering services to the business community,” Halperin explained. “Just look around. Credit unions can now talk to members about business loans and cash management. That's a huge paradigm change.”

CUBC has expanded beyond Florida with the opening of an office in New Jersey that deals exclusively with cash management. While most of the CUSO credit union clients have been centered on the East Coast, Halperin said recent partnerships in Alabama and Las Vegas are part of the strategic plan to build more of a presence in other parts of the country. CUBC also has arrangements with several credit unions to house commercial lenders there. Eleven lenders and counting currently have office space at credit unions in New York, New Jersey, Washington, Baltimore, Philadelphia, Jacksonville, Fla., Tampa Bay, Fla. and South Florida. Bert Bryan, CUBC's president/CEO, was the CUSO's first hire. Today, CUBC employs 34 people.

One of the biggest obstacles CUBC continues to deal with is “finding the right bodies,” Halperin said. Over the past year, the CUSO has beefed up its team through several key hires in nearly all of its divisions.

“Like any start-up business, it's personnel issues. We just keep looking because the expertise is so important,” Halperin emphasized.

Another challenge has been getting the right technology in place to set up the business services product “as basic as possible” so that credit unions can grow with it. For instance, remote deposit capture, which allows a user to scan checks and transmit the scanned images and/or ACH-data to a credit union or bank for posting and clearing, could be one of the great equalizers for the industry, Halperin predicts. CUBC has boiled down the technology to make it user-friendly, he added, saying he expects use by small businesses to increase exponentially over the next few years.

Because each credit union is unique and has varied levels of priority, CUBC starts each relationship with its Master Business Services Development Plan through its consultative banking division. The plan takes an extensive and ongoing look at business loan needs, member management, relationships with existing select employee groups and new ones and areas credit unions want to target going forward.

“With each credit union and branch, we try to put this plan in place and it doesn't happen overnight,” Halperin said. “We sit down and talk to the credit union, everything gets line itemed and time frames are put in place.”

As for CUBC's pricing structure, Halperin said the CUSO “makes it money on growth” rather than on the front end. On average, a $200 million credit union will spend less than $50,000 to get the programs started, he pointed out. And as many in the industry have said before, Halperin said starting from scratch independently could cost the average credit union millions of dollars with staffing, technology and other additions.

CUBC doesn't exist in a vacuum. Halperin said several alliances with entities like Lending Solutions and S1 Enterprise, a division of S1 Corp. and provider of multi-channel financial service software, have helped to bolster loan servicing and remote deposit. The CUSO is in final negotiations to partner with Allied Solutions, a commercial insurance company, Halperin added.

In 2008, CUBC has plans to provide a merchant service program that is scheduled to include prepaid cards, debit cards and payroll cards. Halperin said while there has been a strong emphasis on the business lending component in the industry, keeping the focus there might not be the wisest move.

“Loans are great. You must have them. They will create some growth for credit unions but they're not going to accelerate growth,” Halperin said. “We set goals for new branches, loans, business deposits to attract businesses. It's a grassroots movement for us.”

–msamaad@cutimes.com