Are Business Services Right for Your CU?

By Tom Dunn
CUNA Research & Advisory Services

By most measurement standards, credit union involvement in business services is small. But in recent years, growth has been rapid as more credit unions discover the growth opportunities and revenue potential business services represent.

The most current data shows 37.5% of credit unions offered services to small businesses. Mid- year 2006 data reveals that 1,954 U.S. credit unions have outstanding member business loans. The total increases to 1,991 when loan participations are included, but still represents only 23% of all U.S. credit unions.

Respondents to CUNA’s 2007 Credit Union Member Business Lending & Services Survey indicate when credit unions with a business lending program were asked their reasons for going into business lending, the leading answer was to offer more services to members (57%), followed by interest from members at 54%, and loan growth only slightly less at 48%. These answers make it safe to assume a successful business lending program results from a variety of reasons and not just one model.

But a credit union may also make the decision to offer business loans and deposit services based on a strategic examination or survey of its membership independent of specific demand. Market analysis and surveys may reveal needs in the community and within their membership—many of whom may never previously have considered their credit union as a source of business services.

Business services/lending can also be an effective portfolio diversity tool in terms of ALM management (i.e. credit risk, yields, loan durations and amortizations).

In any case, according to Pat Spencer, national sales manager for member business services software provider Baker Hill, Inc., business services "should not be a product of ‘me too’ thinking because this attitude often indicates that the credit union has not developed a business plan, studied their membership or market, and has no concrete idea whether there is a market for the services they intend to offer," says Spencer. He cautions that the investment costs in a business services operation are too great to be merely a copycat undertaking. And, he notes, the turnover that some credit unions have witnessed in member business services staffing is a direct result of these circumstances.

What advice would current credit union business service leaders give to those considering starting a business services operation? In this survey, the most common bit of wisdom came from the 35% who responded "go slow." Hiring qualified staff followed close behind at 29%. The advice to join or partner with a CUSO, at 15%, ran a distant third.

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