Commit to Serving Member-Owned Businesses

CUs increasingly partner with members to support their small-business needs.

SMALL BUSINESSES, A major part of the U.S. economy, create 60% to 80% of new jobs, the Census Bureau reports. Half of new employer firms survive at least four years. Availability of capital is a major factor in their survival.

The proportion of credit unions offering member business loans has grown slowly but steadily-to 18.8% of credit unions in 2004 from 14.6% in 2000, according to the Credit Union National Association (CUNA). During that time, annual member business loan growth rates increased to about 49% from 17.7%. Here's how three successful credit unions capture some of that opportunity.

Twenty years ago, Royal Credit Union, Eau Claire, Wis., began meeting members' needs for business loans. Now it's known for its full range of member business services. With 106,000 members and $702 million in assets, Royal ranked seventh in the nation in member business loans in 2004.

Royal's president/CEO, Charlie Grossklaus, is also vice chair of CUNA's Business/Select Employee Group (SEG) Services Committee. Royal's business services include loans, credit lines, deposits, checking, and card services. Grossklaus sees several benefits.

"It diversifies the credit union's loan portfolio and places more loans at variable rates, reducing risk and possibly increasing income," he explains.

Furthermore, he says, Royal is more attuned to local interests than the large banks are, and Royal's members get services not available to most bank customers. Indeed, Royal has tapped into a market little known to many banking executives.

Larry Accola, Royal's senior vice president of business loans and services, explains, "Our five business lenders and several other key department staff are former noncredit union people, and we all were surprised by the number of business members who were consumer members firstmore than one-third."

Royal has had little trouble finding prospects for business servicesmost of them referrals.

The reason for Royal's success as a business services provider is straightforward: "Hire the right people," Grossklaus says. "Experience is the best teacher."

Grossklaus recommends hiring a lending executive with at least 10 years of experience. While the National Credit Union Administration requires new lending executives to have two years of experience, that's not enough, he concludes.

Match prospects to infrastructure

When Desert Schools Federal Credit Union, Phoenix, launched member business services two years ago, staff took lessons from Royal and other credit unions. Susan Frank, president/ CEO of the $2.3 billion asset credit union, knew they needed expertise. Fortunately, she says, Vice President/Chief Lending Officer Robin O'Rorke had the necessary experience.

Between 15% and 19% of Desert Schools Federal's 300,000 members are involved in small businesses, based on national estimates, Frank explains. Some opened their business accounts at banks and eventually moved their consumer accounts to those banks, so credit union staff were motivated to offer business services. Their motivation grew when they heard of complaints that the banks weren't providing good service. Staff figured they could turn the tables by providing superior business services, thereby winning back consumer accounts as well.

That strategy worked, and now Desert Schools Federal offers a full array of business services, including savings, checking, overdraft protection, and various types of loans.

The credit union used its resources to develop business services.

"We were lucky in that we have a department of business development for SEGs," Frank explains. "We had established relationships, and the member business staff worked with them."

At the same time, Desert Schools Federal markets its small-business services to its SEGsanother avenue for growth. "We have a set of products intended for small business. We market the same product set to both select group businesses as well as businesses in general," O'Rorke says.

The need for more prospects is one reason Desert Schools Federal continues to put a premium on hiring experts. During the past year, it hired three experienced commercial loan officers with lots of contacts, Frank says. But she urges care in developing prospects that match the credit union infrastructure.

Desert Schools Federal, for example, likes businesses with low levels of cash transactions because deposit windows aren't feasible now.

Another crucial aspect of member business services is training, Frank says. Desert Schools Federal offers business products on a platform its member service representatives (MSRs) use. MSRs needed more time than managers anticipated to master the new and complex products.

Hire the team

No one agrees with advice on hiring experts more than Jack Fallis, president/CEO of Global Credit Union, Spokane, Wash., with assets of $295 million and 60,000 members.

"Hire all the right people," Fallis stresses. "Hire a complete team."

Fallis advises creating an environment that attracts people from other institutions. Build a new department complete with loan officers, credit processors, and credit administrators to handle the entire business services relationship, because it's so different. The complexity of the products, regulations, and compliance issues makes it nearly impossible to simply convert consumer lenders to business lenders.

Still, the investment in a new department is worthwhile, Fallis says. When Global launched its member business services, it was able to diversify its portfolio-an important priority for a credit union serving the military. And compared with consumer lending, business lending has lower delinquencies and losses.

Also, Global immediately could serve its 2,500 members involved in small businesses. New business accounts brought new consumer accounts. Small businesses generally benefited by having another option, Fallis maintains, because banks had lost their focus on small-business services.

"When a lawncare business wants a $10,000 line of credit to keep its lawn mowers going, it's not likely to get it at Bank of America," Fallis says.

Global's business services include credit lines, inventory credit lines, accounts receivable, and equipment financing and leasing lines. In developing prospects, Global looks for people who have good ideas and solid business plans. They also must be committed to working hard in their partnership with the credit union, Fallis concludes.

Copyright Credit Union National Association, Inc. Oct 2005
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