Financial Services for Start-Ups and Entrepreneurs — A Missed Opportunity for Credit Unions

Earlier this month, the National Credit Union Administration (NCUA) and the US Small Business Administration (SBA) announced an agreement to facilitate connecting small business owners with their local credit unions to obtain better access to capital.  The three year partnership includes a series of educational and training initiatives to better inform credit unions about SBA’s lending programs.

Credit unions face a huge opportunity to serve small businesses, entrepreneurs, and start-ups and this arrangement will continue to encourage credit unions to tap into this market.  At this time, many credit unions both large and small have failed to seize the opportunity to serve this segment.  Using SBA flagship 7(a) loans as a case in point, credit unions made up less than 2% of the program’s total for the 2014 fiscal year.

Some may argue that credit unions should not go after this market as the US government restricts the amount of business loans that credit unions can retain to 12.5% of total assets; however, both loans under $50,000 and the portion of the SBA loan guaranteed by the government, sometimes as much as 90% of the principal, do not count against the cap.

In the current economic and competitive environment, credit unions need to look for additional sources of revenue for the benefit of their membership.  Expanding business lending programs coupled with offering key treasury services and business credit cards are critical to a credit union’s success in 2015.  If credit unions do not keep up, they will not be able to attract new business relationships and will risk their current business members moving to other financial institutions.

Jordan Sternlieb is a leader in West Monroe Partners’ West Coast Banking and Credit Unions Practice.  For more information on business services product development and loan origination automation and optimization, please contact him directly at jsternlieb@westmonroepartners.com.

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