Small Businesses Present an Opportunity for Credit Unions

Tightened standards at banks have reduced the availability of loans for small business owners. The need for small business loans is now greater than the supply.


Now more than ever, credit unions are reaping what they sow – serving their members. The industry has seen recent record-setting growth numbers in loan originations and memberships, while conversely seeing sharp declines by other lenders.  By sticking to the basics and offering products and services that benefit members, credit unions will continue to see positive results, which can help open up more relationships with consumers and organizations.

It’s an even better time to capture market share and earn loyalty among the underserved population. One such opportunity that has been brought into the spotlight recently is Member Business Lending.  With bank failures, bailouts, and regulatory pressures, banks are constrained on their capital and have tightened up on lending – losing the smaller business owners in the shuffle.  The demand is now greater than the supply, and small businesses need lenders that understand their local communities and needs, and how to service them. 

Not only is there value in servicing the needs of small business members, these relationships can be highly profitable as well. TransUnion research shows that business accounts can be two to four times more profitable than consumer accounts.  Additionally, it has been reported that consumers with both business and personal accounts tend to pose less of a risk.  And, according to findings from the Small Business Administration, regional and community-sized institutions earn greater risk-adjusted returns than larger institutions. 

For the past four years, credit unions have maintained an impressive average growth rate in small business lending of 17 percent, even in this challenging economy.  Credit unions are well-capitalized to continue that growth in 2010, and with potential legislation to expand small business lending to a 25 percent cap on assets enabling $10 billion in additional loans, now is the time for credit unions to act.

Do you know which of your members are currently associated with or own a small business? Solutions available on the market today have identified as much as 20 percent of a credit union’s existing members may be associated with small businesses.  These members are prime prospects for credit unions to target. Additionally, these same solutions are capable of identifying non-member small business owners, providing credit unions with new account acquisition opportunities. 

Linking the small business information to the credit data of a proprietor is also important as the loss of one small business loan can be multiples of a single consumer loan.   By understanding both the small business variables (e.g., number of years in business, revenue, number of employees, SIC codes, etc.) and then applying prescreen selection criteria to the proprietor’s personal credit profile, a credit union can target the right prospects for its products and services.  Using both sets of data allows credit unions to better segment the opportunities to grow their small business portfolios and maximize those relationships while controlling for risk.

New loan growth is a key issue facing many credit unions this year, and being proactive in expanding Member Business Lending is one way to achieve it.  Most consumers have traditionally relied on banks to obtain small business loans and services.  While banks continue to cut back on lending, credit unions can capture more market share and grow their own profitable small business portfolios.  Good prospects are likely already sitting in your existing membership base and can be easily identified.  Competition will return, so credit unions should act now.

David Dodson is vice president of credit unions at Chicago-based TransUnion. He can be reached at



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