One way to tackle the sophisticated small business market is to even the playing field with commercial banks by offering a richer portfolio of business loan products.
According to a 2013 Raddon Financial Group study, the majority of small businesses with annual sales of $5 million and over are active users of credit cards. Many also take advantage of lines of credit, vehicle and equipment loans and leases, as well as commercial real estate and Small Business Administration (SBA) loans. If your credit union doesn’t offer these common products, you have little hope of gaining traction with the top end of the small business market.
Yet most credit unions focus primarily on commercial real estate. In fact, 84% of all member business loan balances are real-estate secured, leaving only 16% for commercial & industrial, credit cards, vehicle and equipment loans, and the like. Credit unions are leaving a huge opportunity on the table.
What can your credit union do to capture more of the sophisticated business lending market? Consider focusing on one or two specific, discrete niches, such as:
- Commercial & industrial lending: Following the Great Recession, most banks backed away from lending to small businesses, leaving many of these companies strapped for capital, particularly in the $50,000 to $250,000 loan range. This is a natural market for credit unions, and one they can serve very well.
- SBA and government-guaranteed loan programs: There are a number of advantages to using SBA-guaranteed programs such as the flagship 7a and associated SBAExpress programs. Although a guarantee will never make a bad loan good, it does help to limit credit exposure in the cases of a collateral shortfall, a startup business, or riskier industry sectors. And to top it off, the guaranteed portion of any business loan does not count toward the statutory MBL cap!
- Targeting specific industries: Many credit unions have found success by narrowing their focus to just a couple of industry segments. For instance, you may consider creating a special package of business loan and deposit services for the veterinarian market, or one specifically designed for medical practitioners. By doing this, you will establish your credit union as the “expert” in that industry, and over time become recognized through word of mouth referrals as the go-to resource—a lender that understands your target market’s unique needs.
