Jan 01 2002

Small Business: The New Frontier

Report  
Number  
77

Members need and deserve financial services beyond the traditional range of credit union products. In addition to traditional loans, they need the financial backing that will help their business grow

William W. Sayles
The Center for Credit Union Innovation, LLC
Report Number 77

Executive Summary

The current environment in the financial services industry is particularly demanding. Competition is fierce, and most product offerings are mature. Margins for first mortgage lenders are slim. More and more institutions are becoming involved in indirect lending, making this a difficult competitive arena. The big players in the game are appropriating credit cards. The profitable components of a credit union’s loan portfolio have therefore been limited to used autos, home equity loans and personal lines of credit. Overall, margins are shrinking and consumer product lines are becoming commodities in which the sale typically goes to the lowest bidder. Meanwhile, the area of business services continues to offer significant opportunities.

What is the research about?

In Part I of Small Business: The New Frontier we look at the size and scope of the potential for member business services. Part II of this paper provides guidelines for credit unions planning to offer business services to their members, based upon the NCUA’s regulatory approach to small business services. The final part of the paper examines five credit unions whose small business service programs serve as models that others can use in designing their own approach to small business services.

What are the credit union implications?

As credit unions enter the 21st century, they have vastly expanded their powers to serve members in terms of products, services, and fields of membership. However, this broadened capacity does not guarantee the future. Credit unions must continue to evolve if they are to survive to serve future generations of members

Small business lending and the business services that surround a small business are an important and profitable undertaking for credit unions. The market is enormous, and competition is less intense than in consumer markets. Small business services fit credit union operations very well, they have the potential to bring in many new members, and they constitute a tremendous community service. It can be a fairly safe business with high margins, but it does require considerable effort and expertise.