Convenient location, credit availability, and low fees/interest charges are
the three most important factors for credit unions in establishing a favorable
reputation with their small-business programs, according to a recent Greenwich
Associates’ research study of U.S. small businesses. And while most credit
unions offer all three, surprisingly, many credit union executives feel ill-equipped
to enter the business services arena.
For example, it’s common for executives to cite a lack of cash-management
capabilities, night-drop facilities or lending restrictions as major barriers
to entry. Yet, Greenwich Associates lists cash-management and night-drop facilities
as two of the least likely products for small businesses to purchase.
To set the stage for what small businesses need from their financial services
provider, it is important to note a distinct difference in the product usage
by various business segments. Many financial institutions establish an arbitrary
definition of small business as those companies with sales of less than $5 million
or $10 million. But a company with $10 million in annual sales has a usage pattern
that is quite different from a company with sales of $1 million. Commercial
banks tend to ignore businesses with less than $2.5 million in annual sales,
creating a made-to-order opportunity for credit unions. There are several advantages
to targeting the smaller firms:
1. This segment is not aggressively marketed to or well served by national
or regional banks.
2. Smaller firms’ borrowing profiles better match credit unions’
3. Product usage and preferences closely match credit unions’ product
Providing the right products
Business checking accounts are the single most-prevalent service that small
business owners need, while sweep accounts are one of their least-used products.
And, frankly, the ability to offer analysis accounts with or without sweep capabilities
is not a very important decision factor in most small-business owners’
choice of a new financial institution. They tend to prefer simple, easy-to-manage
accounts rather than complicated and expensive analysis accounts.
After checking accounts, the next three most-used products for small businesses
are credit cards, secured credit and unsecured credit. Happily, all four of
these products are well within most credit unions’ operational capabilities.
Credit products serve to illustrate the point: Most credit unions’ existing
system platforms are easily able to delivery the credit products needed by small-business
owners. And typically, loan amounts of $5,000-$100,000 unsecured and $5,000-$500,000
secured will meet the needs of companies with sales below $2.5million. For lines
of credit, a monthly statement with either interest or a minimum payment due
is usually all that is needed, along with a monthly or annual record of interest
paid on all business loan types. Because secured and unsecured term loans generally
amortize monthly, most consumer loan systems are capable of servicing these
Leverage outside firms
Underwriting and documentation of business loans also can easily be outsourced.
There are several services available with trained, experienced commercial lenders
that cater to the credit union community. These services can enable your credit
union to leverage a very capable staff for a fraction of the cost of a stand-alone
commercial loan department. This allows you to concentrate your resources on
member relationships rather than back-office functions, enhancing your business
members’ experience and successfully differentiating your services from
According to Greenwich Associates, there are four key factors that cause businesses
to switch providers:
1. Better/lower fees than current provider
2. Better commitment to serving small businesses
3. Better/more convenient branches/offices
4. More flexible credit terms
All of these attributes fit well with our credit union philosophy of meeting
the financial services needs of people of average means – your member/owners.
Whether they are current members who have their business accounts elsewhere
or small-business owners you wish to attract, they will respond very well to
credit unions’ “people-helping-people” values. By focusing
on your strengths and sharing the credit union difference with small-business
owners, you will soon realize the benefits of serving this new and fast growing
For more information on Member Business Solutions, a Credit Union Service Organization
(CUSO) owned by $4.2 billion Southeast Corporate, please contact Jim Gallagher
at 888-627-7881 or visit WWW.MBSLLC.ORG.