Breaking the Bank Mold: Credit Unions Fill the Business Gap

Guest Editorial by Chad Carter, Director of Strategic Partnerships, Quantum Lending Solutions

Small business deposits are hotly contested in the battle between credit unions and banks. Over the past few years, credit unions have realized that many of their members also own businesses and are uniquely positioned to give these small business owners unique services and products in their communities. How can a credit union win the battle to attract new business members and provide assistance to their existing ones?

Chad Carter

The best place to start is to assess the hurdles small business owners face and cross-reference that with the credit union’s unique strengths. Obviously, not every problem can be solved, so it’s critical to pick and choose the products and services that will make the most impact and drive the best kind of growth. As credit unions vary greatly in size and scope, there is not a one-size-fits-all approach.

When considering which path is best, consider these top struggles gathered by the Fed’s survey of small business owners. Which products and services currently offered solve any of these? Which of these could or should reasonably be solved by a credit union?

As a financial institution, the most obvious way to assist a small business member is to offer access to working capital to address changes in costs, operating expenses, and uneven cashflow. Some credit unions have been lending to small businesses for decades and some are completely new to the ins and outs of underwriting a business loan. Does it make sense to build a solution internally or find a solution that already exists?

As 79% of loan applicants need less than $250k, the additional revenue on these small loans may not cover the costs to hire and run a business lending department. For many years, banks have partnered with non-bank lenders to offer a “second look” at applicants to expand their credit box without adding risk to their balance sheet.

Why should banks be the only ones with this trick up their sleeve? Here are some of the benefits a credit union could expect through a second-look partnership:

● Member deposit retention and satisfaction

● Attract new members

● Earn a stream of new revenue

● No additional costs or balance sheet risk

● Learn from the data

As with any new partnership, due diligence is paramount. Consider these questions as you vet a solution:

● Have they done this before with large, regulated financial institutions?

● Do their loans align with your values and your members’ needs?

● What does the implementation process look like?

● Is the solution a purchase of SaaS or revenue sharing partnership?

● Do you have enough demand to bother with creating a solution?

● Will this solution create new demand in your community?

● What do reporting and data visibility look like?