Consider the following facts.
- Represent over 99% of the roughly 25 million US companies.
- Employ fewer than 500 employees per business.
- Employ half of all private sector employees.
- Pay 45 % of the total US private payroll.
- Have generated 60 to 80% of net new jobs annually over the last decade.
- Create more than 50% of the non-farm private gross domestic product (GDP).
- Employ 41% of high tech workers (i.e. scientists, engineers, computer professionals).
- Are 53% home-based and 3% franchise businesses.
Sources: U.S. Bureau of the Census; Advocacy-funded research by Joel Popkin and Company (Research Summary #211); Federal Procurement Data System; Advocacy-funded research by CHI Research, Inc. (Research Summary #225); Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration.
Small businesses account for roughly half our economy.
It is very likely that some of your members are small business owners and almost certain that a significant number of your members work for a small business. Perhaps that’s why Rodney E. Hood, Vice Chairman of the National Credit Union Administration (NCUA), stated in his keynote address to the NACUSO 2006 Business Services Collaborative, “it is absolutely vital that credit unions are able to meet the entrepreneurial needs of their members so they may launch and expand successful businesses.”
Whether your members are seeking to launch new businesses or endeavoring to expand existing ones, the demand for capital is on the rise. In fact, Callahan & Associates reports MBL continues to be the fastest growing loan category for credit unions, with total MBL approaching $20 billion in 2006, an increase of nearly 24% over 2005 levels.
The typical MBL packages can take many forms and are much more complex than traditional consumer loans. Your members might be looking for start-up capital, asset-based plant and equipment loans, inventory and/or A/R financing, working capital lines-of-credit, commercial real estate loans, or some combination of the above. You can’t rely on a credit score and a debt-to-income ratio for these decisions.
MBL is relationship lending.
The lender has to know the borrower, understand the business cycle, and conduct a thorough analysis of the borrower’s and the business’ financial statements including: cash flow, ratios and trends, proforma spreads, and industry comparisons. Since MBLs will be repaid using cash flow from business operations, the lender has to understand the borrower’s ability to repay. As a minimum the lender should answer the following questions.
Is the business profitable?
Does the business generate positive cash flow?
Is the cash flow sufficient to cover the proposed debt service?
Is a global cash flow required to cover debt service?
Can the business sustain the historic or the projected growth?
If the business experiences a slowdown, can the balance sheet support the debt?
Does the loan have adequate collateral coverage?
Does this request meet your credit union’s MBL policy?
Simplify you MBL process with underwriting software.
Many credit unions employ software to simplify the required analysis and underwriting. This saves time, reduces the possibility of errors, and standardizes the credit approval and underwriting process. Mid-Minnesota Federal Credit Union has been using fisCAL, a product of Vision Software Solutions, for their MBL underwriting for over three years. Julie Hofius, Director of Business Services, recently attended training on fisCAL and had the following comments on the new release, fisCAL 9.
“The new upgrade is much more user friendly. I was also impressed with the power of the product and the ability to pull credit bureaus and personal financial information in to do a global cash flow. I am excited about using the full capabilities of this product for financial analysis.”
For more than twenty years fisCAL has been a key component of the underwriting process for hundreds of community banks and credit unions. For more information on fisCAL, visit our website at www.fiscalsoftware.net or call (800) 248-5550.