By Ray Birch
LOMBARD, Ill.—Credit unions this year have a big opportunity to expand their business lending, according to Raddon–but a lot of that will depend on the performance of front-line staff.
Raddon told CUToday.info that a number of market and economic factors that influence business lending are aligning favorably for credit unions now: new MBL rules, strong credit union membership growth and public image, in addition to growing confidence among small businesses over their own futures. The result: many are ready to expand their borrowing.
But the biggest obstacle in the way of credit unions gaining market share in business lending is that many small businesses still don’t know credit unions are business lenders that have a broad portfolio of services, said Marcus Rothaar, senior research analyst
“In my opinion, the number-one thing credit unions need to overcome is awareness,” Rothaar said. “There is a segment of the small business community that is not aware that credit unions offer business loans. And of those who are aware, many question the credit union’s level of expertise. As simple as these things sound to address, they are big obstacles. Credit unions have to get the message out that they offer the same full line of services and have the same expertise as the big banks when it comes to business lending.”
Challenge From Banks
Rothaar said data show what credit unions are up against—the six largest U.S. banks control about 60% of the primary business relationships nationwide.
Advertising campaigns are important, but what will really make an impact on public perception is training front-line staff, including tellers, on the basics of business lending, according to Rothaar. He said tellers should be able to converse effectively with small business members, spot needs, and understand the CU’s business offerings.
“I think, in this instance, everything comes down to the people,” Rothaar said.
Rothaar supported his thinking that tellers play a large role in business lending, saying Raddon research indicates that tellers are the primary contact for small business members.
“More than half, 52%, told us that tellers are their primary point of contact,” he said. “For credit union management, this clearly indicates there needs to be an enterprise-wide initiative to improve the skills of the front-line staff. They have to have a comfort level to work with business members and speak their language. They are the ones who can change the perception that credit unions either don’t offer business services or are not as skilled here as the banks.”
Other steps credit unions should be taking, according to Rothaar, are improving small business loan delivery and turnaround time and offering customized loan solutions tailored to the needs of each business.
Marcus Rothaar
Rothaar contends that credit unions are better equipped than the big banks to understand the needs of each individual business borrower to create customized loan offers.
“Credit unions are the fabric of the community, they are local and they know their members and the businesses that surround them,” said Rothaar. “CUs need to make it clear that they are the type of organization that can truly meet the needs of small owners. One size does not fit all. The $5-million business has much different needs than a $130,000 micro business, and credit unions need to show that they have better, customized solutions.”
CUs, too, need to pay close attention to the fintechs to see how they are delivering small business lending services and changing member expectations.
Rothaar explained that Raddon research shows that while price is an influencer, small businesses base their banking choices a great deal on service delivery.
“They are looking at the technology solutions that are available at the bank or credit union, the delivery channels,” Rothaar said. “They want to be able to interact with the financial institution through a channel that is the most convenient to them. So, credit unions have to examine their mobile, online, branch and ATM delivery channels—all of them.”
Online Lending
Raddon research shows that 19% of small business owners have used an online lender, which is certainly influencing their perception of what the loan process looks like, especially regarding speed, Rothaar said.
“There is a growing segment of small businesses that are demanding more of an online loan experience versus the traditional process,” he said.
CUs also need to address their pricing, as Rothaar said he believes banks’ pricing is more aggressive.
“This may speak to the level of risk credit unions are willing to take on in the business lending space,” he said.
The best place to reach out to expand business lending is with existing members first, said Rothaar.
“Our research shows there are many business owners who have a retail account at the credit union but not any business services,” Rothaar said. “This is the low-hanging fruit. Identify these members, and the tellers can help here.”