10 FOCUSREPORT/Business Growth
GUEST OPINION
Business services has proven to be a rich opportunity for many credit unions,
allowing them to meet the financial needs of small business and
commercial borrowers. Over the
past decade, business loans have
grown from less than 4% to nearly
7% of total credit union loan portfolios. And with more than 25 million small businesses in the U.S.,
the opportunity for credit unions
is clearly there (see the accompanying pyramid figure).
Yet, credit unions still lag far
behind their bank peers. Many
cooperatives face structural, cultural and strategic challenges that
prevent them from meeting their
business members’ needs.
Although many credit unions
are comfortable lending with
commercial real estate (CRE) as
collateral, due to some similarities
with consumer mortgage lending, they are missing out on serving the needs of small operating
businesses. Up to a certain dollar
amount these loans can be very
simple to do and the market fits
many credit unions like a glove.
There are many benefits to
a strong small business lend-
ing program. You can help your
members’ businesses grow, in
turn helping the economic health
of your community. Small busi-
ness loans allow credit unions to
get started in commercial lending
with less risk. And small loans can
serve as a gateway to strong, long-
lasting member relationships.
However, to offer small business loans efficiently and effectively, credit unions must
embrace one key but elusive element: The branch.
Here is a six-step roadmap to
help you get started with implementing a small business lending
program, leveraging your existing
branch network:
1. Determine Your Strategy
It is absolutely critical to have a
solid strategy and business plan in
place. And before that, you need to
ensure full buy-in from the top. It’s
one thing to decide to begin offer-
ing million-dollar-plus CRE loans;
it’s a completely different story
to begin offering business loans
and services through your exist-
ing branch network. Such a pro-
gram generally crosses traditional
lines of responsibility and every-
one should be part of the decision
process. The board,
CEO and entire se-
nior leadership team
must understand and
embrace the oppor-
tunities and benefits,
as well as the risks
and investment re-
quired to implement
a successful small
business program.
Create a detailed, realistic business plan
with well-considered
goals and scope, as
well as the financial
and manpower resources required. It
is also important to
include the exact responsibilities and expectations of
branch staff and management in
the plan.
2. Select Your Products
Once the business plan is written
and agreed upon, the next step is
to determine what products will
be offered as part of this program.
We recommend four relatively
simple products that are easily of-
fered through your credit union’s
existing branch delivery channels
based on their relatively low risk
and similarity to typi-
cal consumer prod-
uct offerings: Busi-
ness vehicle loans,
small equipment
term loans, small op-
erating lines of credit
and business credit
cards.
3. Set Risk
Thresholds
Your credit union
should establish policy risk thresholds
based on several factors, including your
internal culture, appetite for risk and system capabilities. The
dollar limit thresholds for each
product offering may vary and
should be based on your membership’s needs and your credit
union’s appetite for risk, but an
upper limit of $100,000 is generally advisable, especially when first
starting out.
4. Leverage Your Branch
Staff
We recommend keeping the underwriting centralized within an
internal or external expert, while
empowering your branch staff to
be the face of the program.
Consider designating a special-ly-trained “branch champion” at
each location. Select these champions based on their enthusiasm
and outstanding sales and service
skills, and train them on business
products. Establish sales goals for
the branch champions and they
will take to it with enthusiasm.
5. Monitor Risk
In your business lending policy,
define exactly how you will monitor your small business loans on
an ongoing basis. It is important
to monitor risk but also to be efficient with the time you put into
monitoring small loans.
With a streamlined underwrit-
ing process for loans generated
through your branches, it’s impor-
tant to focus on loans that require
very little, if any, ongoing risk
monitoring and document this in
your policy. Even if you decide to
take a “book it and forget it” ap-
proach for business vehicle loans
up to a certain dollar amount (for
example), that needs to be de-
fined in the policy.
6. Get Ready to Scale!
Lastly, the most successful small
business lending programs are
designed to scale up efficiently,
where you can handle 100 applications a month as easily as you
handle five. To accomplish this,
you need to plan for how you will
build your internal and external
staffing and resources to handle
the growth in volume over time.
You will also need to establish
simple, easy-to-follow procedures
and a streamlined workflow.
It’s also critical to establish success metrics before you begin,
such as portfolio growth, loan
quality and related deposits, to
ensure you stay on the right path
as the program grows.
Your credit union can implement a successful branch-based
small business lending program
by following the above steps. To
ensure a positive outcome, get
senior-level, cross-departmen-tal buy-in right from the get-go.
Make partners of your colleagues
in retail banking and consumer
lending, and seek out their help
in getting the branches engaged
and excited about selling business
products.
Business services can be
frightening for credit union staff
that don’t have experience serving this unique and demanding
niche. But the rewards for your
team, the credit union and your
members are well worth the
challenge. n
Small Business Lending Success Starts in the Branch
Larry Middleman
Founder and
President/CEO
CU Business Group,
LLC
CONTACT
503-232-2876 or
larry.middleman@
cubg.org
U. S. Small Businesses
177,000
#Small Businesses
270,000
800,000
4. 8 Million
20. 6 Million
Target
market
With more than 25 million small businesses in the U.S., the lending opportunities for credit unions are clearly there.
‘Although many credit
unions are comfortable
lending with
commercial real estate
as collateral, due to
some similarities with
consumer mortgage
lending, they are
missing out on serving
the needs of small
operating businesses.’
