iDiz Incorporated

Small businesses create jobs, something the country desperately needs right now. But small businesses are finding it difficult to get credit and financing from banks in order to expand and grow. So where can they turn? Credit unions are increasingly seeing small business as a way to grow their membership.

USA Today reported a CUNA statistic that credit union loans to small  businesses rose 11% for the first nine months of 2009, while banks’ outstanding loans decreased 3.9%. And if Congress passes a bill to lift the current cap, 12.25% of assets up to 25%, credit unions can make an even bigger splash in small-business loans. According to CUNA, those added funds would generate nearly 100,000 jobs in the first year.

Of course the American Bankers Association isn’t happy about the idea of credit unions having more business lending capability, but that argument seems pretty weak in an economy desperate for jobs. CU officials hope the cap increase will be part of a small business lending bill unveiled this week.

Targeting the small business market has tremendous potential for growing new members and increasing services to existing members, but are most credit unions ready for business accounts? And are they ready to compete head-to-head with community banks who have decades of experience in this market and usually provided these services both competently and professionally?

As a business owner myself, I can tell you that you will need to offer a complete suite of business-oriented products to do it right: checking (regular plus HSA and HRA accounts), a money market or “sweep” account that automatically moves checking account balances into an investment account, lines of credit that allow businesses to simply write a check when needed, online banking, credit cards (sometimes for multiple individuals), merchant accounts to process customer payments, etc. The more customized you can make them for small businesses, the better.

You will also need to have staff members who can focus on the small business owner, become familiar with their needs, and provide them with creative financing solutions. Otherwise, it will be easy for the small business owner to tell that they are secondary to your regular members, just as it is easy for them to tell that large banks are only interested in larger corporate clients.

You may also want to become a Small Business Administration “Preferred Lender” in order to offer a wider variety of loans and provide faster turn around on SBA loans or other government-sponsored programs.

But all that only puts you on a level field with the community banks. To stand out, you need to provide something unique, such as:

• Connect them with experts. Small businesses also need access to good advice from accountants and lawyers, which gives you the opportunity to play matchmaker within your membership. Sponsoring business seminars and workshops is also a great way to help small businesses become more successful and profitable.
• Look for specific needs. You may be surprised at how many of your members may be looking into investment property as an income source, but are unsure of how to handle the risks involved. Keep your eyes open for a new program (Responsible Rent Loan) coming out of Filene’s i3 teams that gives landlords the ability to pre-screen potential renters as part of their mortgage financing package. This reassurance not only keeps a deep-pocket member from using the bank down the street to finance the property, it deepens the relationship and allows the credit union financing to be a bit less rate-sensitive.
• Help them launch. Another Filene project is “The Big Idea” which is centered on helping people turn their dreams of small business ownership into reality.
• Position yourself as small business friendly. Make sure your marketing reflects what is unique about what you offer. Canadascreditunions.com is a good example of a web site built specifically for business banking, that provides webinars, success stories, videos, and a “What would Harold do?” business book written by business owners for business owners that is only available (where else?) at your local credit union.