There is a "gigantic opportunity" awaiting credit unions in member business lending and retirement planning, a group of CU directors here was told.
Jim Devine, CEO of Hipereon, a Redmond, Wash.-based consultancy, told the CUES Directors Conference here that in recent years banks have centralized and depersonalized the business lending process, leading to enormous frustration by borrowers. In response, he recommended credit unions develop their own well-trained business lenders. However, he said any credit union that makes the decision to get into member business lending must realize the process requires a long-term commitment.
"Credit unions have a lifetime relationship with their members," he said. "This should include handling member business loans, then retirement. In the next 20 years, an enormous number of people are going to hang up their spikes and retire. And they will want to continue their lifestyle. Somebody needs to step up and serve them. Trillions of dollars will be changing hands-it is a gigantic opportunity."
For those CUs wondering where to begin, Devine suggested education and patience. He recommended putting on educational seminars for members to teach potential business borrowers how to better understand their financial statements. He said credit unions must continue to stay in touch with members on a regular basis because an MBL program is "not something that will happen overnight."
Devine repeatedly emphasized the importance of training staff, which he said will allow CUs to perform the necessary credit analysis.
Don't Get In, Unless...
"Credit unions cannot get into the business lending game unless they are thorough and consistent," he stressed. "These loans are bigger and more complex. Credit unions cannot afford to make bad loans."
To avoid risk, he advised CUs to stick with the usual business credit fundamentals: cash flow, character, capital, conditions and collateral. He then offered attendees a bit of poetry.
"If the cash don't flow, the loan don't go," he said. "Credit unions are not in the speculation business. At the end of the day, the business member has to have cash to pay back the loan."
Directors are going to be involved in the member business loan review process, so they also must be knowledgeable, Devine said.
To compete in the 21st Century, he said CUs must think globally, act regionally and focus locally. In regards to the former, he said credit unions must realize they are "in the game" with all other financial services providers. CUs do not compete solely with those institutions in their local area, because the Internet means the world is getting smaller.
At the same time, credit unions in some areas can take advantage of the fact most large banks have out-of-state decision makers. In California, for example, five of the largest banks have their headquarters in the Midwest or on the East Coast. Small businesses want stability, Devine said, which means they don't want their loan officer to change every six months.
Credit unions can focus locally by knowing which members have businesses. "Even in a small market, there is opportunity," he said.
It will not be easy for CUs to find the right people to fill all roles, which makes outsourcing necessary for some functions. But Devine cautioned credit unions not to lose the "relationship feel."
A credit union can be "different" from a bank in the eyes of members by being better, faster, cheaper and nicer, he said. "All four of those will come into play, but know that service is the Achilles' heel, or the missing element of bank small business lending. Credit unions provide better, more personal service."
Overall, Devine counsels proper planning and a long-term commitment.
"Credit unions should not be so enthusiastic about the opportunity that they run out and get into it ill-prepared. Get organized and prepare. Know that it won't happen overnight, but if a credit union stays the course, there is opportunity."
