The Best Business in Town

Be the go-to lender for community retailers and maximize the value (and return) of being a local credit provider.


Every community has a business that has become an institution. It might be an auto parts store run by the guy who was an area football star. Or it could be the home improvement store that defines a neighborhood more than the residents who live in it. These places are deeply rooted in the community, and they attract people for that reason. 

Fourth quarter data contained strong lending indicators, but credit unions still face lending roablocks. One possible solution? Popular local businesses.

At their core, retail lending relationships are partnerships. The credit union becomes the preferred lender of a merchant, places signage in the store, and generates new business through big-ticket-item loans. The store benefits from increased promotion at the credit union, access to a group of potential customers, and the safety of working with a local financial institution.

Caite Blount, director of business development for lending products at Texas Dow Employees Credit Union ($1.6B, Lake Jackson, TX), says thinking like a retailer is critical. Credit unions should understand the seasonal flow of business (i.e., spring is good for home improvement stores because people are getting their homes ready for summer events).

“It’s kind of a hybrid between a commercial and consumer lending relationship,” Blount says.

TDECU started its program with just a few local businesses including a dentist and an RV dealer. Now, the credit union works with more than 80 merchants. By the end of 2009, the credit union had $4.2 million in outstanding retail loans. Its portfolio surpassed $14 million by the end of 2010.

To maximize performance, the credit union tracks its portfolio by loan and by merchant. The number of loans, the amount of each loan, the average credit score of funded loans, and the number of charge-offs are all critical metrics TDECU follows to better understand and improve its portfolio.

If you’re considering retail lending, it makes sense to not only vet potential merchant partners but also to keep regular tabs on their performance.  

KEMBA Financial Credit Union ($593.5M, Gahanna, OH) uses automation to generate a dynamic retail lending portfolio. By adopting new technologies to streamline the application process, the credit union gives merchants faster turnaround times and helps them pass on the convenience to customers. As a result of the new system, KEMBA's volume increased from barely $50,000 per month to $500,000 per month.

These two cooperatives have adjusted their thinking and approaches to the needs of the client. Retail lending can be a sturdy segment of any credit union’s lending portfolio, but credit unions must be flexible. Small business owners all know one thing: To succeed, you have to ride the market waves.