The Opportunity in Small Business Lending

With the right products, know-how, and partnerships, credit unions can tap into the growing small business sector.


There are nearly 27 million businesses in the United States with less than $10 million in annual sales. Collectively these “small businesses” spend more than $4.9 trillion annually. The bulk of these small enterprises have few employees or are sole proprietors. Likewise, they typically have smaller financing needs.

In the past two years, commercial banks have curbed small business lending. Such actions have hindered local growth and slowed the economic recovery. Because these businesses operate in the local community at the grassroots level, they are an attractive target for credit unions. The market holds potential, and with the right products, know-how, and partnerships, credit unions can tap into this underserved sector, increase loans, protect and grow market share, and serve their communities.

Small Business, Big Opportunity
Large corporations have rebounded from the recession, but small businesses are still struggling. Three-quarters of small business owners have said they are impacted by the credit crunch, according to the National Small Business Association. Thirty-nine percent — more than 10 million — have been unable to secure adequate capital availability. Among these small businesses, 47% have been unable to grow or expand their business and 24% have been forced to reduce employees. 

When small businesses lack adequate financing, credit unions have an opportunity to fill in the gap. Building a relationship with a small business is beneficial not only to the business but also to the credit union. It’s a way to serve new members and generate new revenue streams. And as the company grows, it will require additional deposit and lending products, retirement plans, and other financial solutions.

Financial Products Needs
Small businesses use the gamut of financial products. Nine in 10 small firms have a checking account and two-thirds use credit cards for business purposes. Four in 10 use merchant services, savings accounts, and credit services, while roughly 25% use payroll processing and direct deposit. Small businesses also use money market accounts, retirement plans, cash management, investments, CDs, and international services. 

Despite the need for a modern suite of products, small businesses still make the majority of their payments — 59% — by check and cash. By helping small businesses migrate to more cost-effective card solutions, credit unions can create a new revenue stream.

5 Steps to Launch a Small Business Portfolio
Credit unions have enviable strengths for serving small businesses, including deep member relationships and knowledge of the local market. So how do credit unions launch or enhance their small business offerings? By taking five fundamental steps.

  1. Build a business case. The business case must clearly gauge the market opportunity, weigh the risks against the opportunities, and quantify the benefits of entering the new market
  2. Develop products. Evaluate the appeal of your products. Look at everything from features, rewards, and service options to pricing, credit limits, and authorization criteria. You want products that create and sustain long-term preference for your credit union.
  3. Launch your products. Acquisition offers should be appropriate for the target small business audience and support the credit union’s longer-term goals. Determine what channels you want to use, and don’t forget employee training.
  4. Manage and optimize your portfolio. Develop a clear strategy to welcome new members, communicate the benefits of the products, encourage members to activate their cards, and optimize spend through multiple channels. A well-crafted customer service strategy and a member marketing calendar makes for efficient product management.
  5. Analyze your portfolio. Identify key performance indicators (KPIs) to determine which metrics — such as activation rate, spend per card, and cards per account — to track in order to manage the business, and of course, you must monitor risk. Monitor activation and usage trends of new accounts separately from longer-term accounts. Distribute metric findings on a regular basis.

Learn more about these five fundamental steps and the opportunity in small business in a MasterCard whitepaper, available through CUtv.




Nov. 29, 2010


  • Small businesses are finding much greater success in securing funding from credit unions, community banks, and micro lenders than they are from big banks.

    Biz2Credit research shows that the non-bank lenders, such as credit unions, are are providing much of the capital to small businesses at the moment. Why?

    1) Credit unions are local in nature, are more connected with the small businesses in their areas, and do manual underwriting(Bigger banks are more automated and less flexible with regards to credit scores.)

    2) Community-based lenders understand issues related to lower credit scores and are usually less rigid about their funding parameters.

    3) Credit union decision-making is often quicker, and they are willing to provide more money as a business grows. Many times, they can give better interest rates than the bigger banks.

    4) What really drives the lending is the simple fact that credit unions and other smaller lenders make money only by making loans. (They are not investment bankers and don’t generate much revenue from anything other than loan-making.)

    - Rohit Arora, CEO

    Biz2Credit (
    Rohit Arora