CoastCapital Savings Credit Union has found a unique business services niche created by the way auto insurance and injury claims are treated in Canada.
In British Columbia, auto insurance is provided by a government scheme and several Canadians told The Credit Union Journal there are stringent laws ensuring all drivers participate. In the event of an accident in which injuries are sustained, the injured party must hire an attorney to file a claim. Under the B.C. system, the attorney must take the case on a contingency basis, paying all related costs until the government agency pays the claim. That, in turn, creates what are essentially "accounts receivable" for the attorney (known as "anticipated settlements"), but Canadian banks have declined to treat the outstanding insurance payments as such.
That's where the (C) $6.1-bilion Coast Capital has stepped in with its "Disbursement Funding Program for Law Firms," part of a larger business services unit.
In establishing a business department, Bertha Clough, regional manager of business services with CCSCU, said the credit union recognized its traditional strength in mortgages, which are transaction based, did not lend itself to business accounts, which are relationship based with a retail component.
"We have 300,000 members, of which 24,000 are business members and 1,200 are business borrowers. So less than 1% are borrowers in our business services department," Clough said, acknowledging that some of the members use their personal accounts as business accounts.
'Simple Financial Help'
CoastCapital, which has as its mission statement, "Simple Financial Help," discovered the niche serving lawyers as part of a broader attempt to live that mission statement. For instance, said Clough, "Historically, a business owner would come in and apply for a $75,000 loan, and we would give them that $75,000 loan. Now we ask questions and seek to provide a solution. We ask questions about the deposit management, insurance, and their retail business accounts, as well. The value in small business is in retail plus the business relationship. The more products and services we sell to the business itself and the business owner, the greater the profitability but also the greater the loyalty.
Coast Capital segments the business services market this way:
* Self-Employed Small Business, where the owner has a high level of mixing between personal and business accounts; uses a bookkeeper and/or self-serve accounting; revenue up to $1 million, tends to tap own personal credit card if cash is needed. Annual revenues of up to $1 million.
* Small Business: has up to 50 employees, revenues to $10 million, has in-house professional staff, doesn't tend to mix personal and business, are managed by entrepreneurs and professionals.
* Mid Market: Defined as entrepreneurial at a strategic level, low mix of business and personal, have professional designations in-house.
The credit union has further segmented the professional market into accounting, architecture, dentistry, engineering, legal, medicine, optometry, veterinary medicine and physiotherapy. "In talking to these various professions, we came to learn pretty quickly that these lawyers were not having their needs met by their banks," explained Clough. "They just didn't have the receivables. We recognized the challenge that the market faced."
Coast Capital is offering the attorneys insurance, retail opportunities, wealth management, deposit management, and lending. "It takes time to build these relationships," said Clough.
There are 8,000 practicing lawyers in British Columbia, 80% of whom are in private practice. Most are in small firms of one to five attorneys, which is the target market for Coast Capital, which rolled out its new program with a pilot group of attorneys serviced by an employee dedicated to the market. Coast Capital, said Clough, used its pilot group to provide it with references, which it then leveraged to chase after more attorneys. "In setting our goals we wanted to make sure we managed risk, and we consistently asked for feedback," she said. "We attended their conferences."
What are the results? Clough said Coast Capital has established relationships where it had a minimal penetration, has established loyalty, has reached its target of lending $10 million, has provided value-added by doing more than just the loan. The program has seen zero losses in its two and one-half year lifespan. "It truly is a low credit risk, and part of that is dong the lending to the individual, but also to the partners," explained Clough. "Where they would traditionally use other forms of credit, they've paid those off and come over to use this."
No Interest Charged
With the Disbursement Funding Program for Law Firms, Coast Capital charges no interest on the loan until the case file is settled (usually in 18 months). That feature has allowed it to charge a higher interest rate than other loans, and it is currently priced at prime (4.25% in Canada) plus six percentage points. That compares with many credit cards in Canada that carry a 28% APR (the national usury cap is 60%). The rate is fixed at the time the file is opened.
"These principles apply to any small business activity," said Clough. She noted that the credit union has been surprised that banks "have left us alone" on a product "we thought was going to be a commodity." This despite the fact several lawyers have taken the program to banks and asked for something comparable, she said.
