Lending will be critical in 2010 to increasing income and restoring capital on credit union financial statements, as record low interest rates that affect investment yields are expected to last at least through year-end. Meanwhile, banks have continued to draw government and media focus on their reduced lending levels. The Obama Administration have announced several programs to increase lending to small businesses. Small firms are responsible for roughly half of the nation's GDP, but are they being served appropriately by financial institutions?
Of the 26 million small firms in the United States, two-thirds do not have business bank accounts. Of those two-thirds, 69% have a personal checking account that they use for business purposes. As their business grows, they will need specialized services, such as business credit cards, lines of credit, and long-term financing for equipment purchases. Deposit services such as remote deposit capture and invoice management also will be helpful.
Paul Muse, VP of Retail at 1st Advantage Federal Credit Union ($503M, Newport News, VA), has developed processes and goals for his front-line staff to identify potential business members from the credit union's existing membership base. "Each branch has goals for new business loans, and we've added business referrals as a goal on our teller scorecards," Muse says. "We've had several successes of tellers identifying business owners that had personal accounts at the credit union while their business accounts were at a local bank. At that point, one of our relationship managers [a hybrid branch manager and business development associate] meets with the business, normally at its location, to discuss why we're the better option."
Credit unions are becoming more prevalent in their communities as small business lenders. With the help of CUSOs and experienced staff, institutions are making credit decisions based on their local economies. As of the third quarter, outstanding business loan balances for the industry increased 11.9% over September 2008 levels to reach $28.9 billion. Although year to date originations have fallen $2.12 billion, this does not include business loan balances totaling less than $50,000, which eliminates most business credit card loan balances and any small, fixed-asset purchase loans.
The credit union, when expanding its business lending, identified a target of businesses with $1 to $2 million in annual sales, as businesses larger than $3 million in sales normally need more specialized services than the credit union provides at this point. With those targets, 1st Advantage succeeded in the capturing loans from area banks in 2009. "With tightened credit, the banks did not view the small businesses as a valuable asset;" Muse says. "While they were paying on time, they may have had a covenant violation. We can make a local decision that serving their needs helps the community, the credit union, and the business."