MADISON, Wis.-Should credit unions succeed in 2010 in getting Congress to lift the cap on member business loans, there is no doubt commercial loan portfolios will increase. And so, too, will business loan delinquencies.
Like business lending itself, business lending collections succeeds or fails depending on the quality of the relationship between the CU and the business owner.
That's a key point a new white paper from the CUNA Lending Council makes-at a time when many CUs are expanding their business loan portfolios. Titled "Business Lending Collections," the paper's author, Jim Jerving, reminds that business lending collections is very different form consumer loan collections.
"It's more of an art than a science," Jerving told Credit Union Journal. "It's really relationship building."
What business lending collections often comes down to, Jerving pointed out, is having the collections person or team knowing each business closely. "Knowing the owners, the cash flow, understanding the type of business and how it's affected by the economy...That's very important."
Jerving emphasized that having a close relationship with a business member helps the collector see warning signs well before a borrower is behind on payments, the typical point at which the consumer loan collections team takes action. It also enables the collector to work out more effective solutions.
More Than Just A Letter
"When a consumer loan is late, you send a collections letter," Jerving said. "It can be very straightforward. But solutions for problems with business loans are much more complex, as each loan is very different, so the opportunities to fix them can vary a great deal. You also have to consider what is the value of the relationship with the business owner."
To be able to have these insights and the ability to fix problems when they arise, the business loan officer should also be the collector, Jerving shared. "The person doing business collections must have good people skills."
But the collector's closeness with the business and its owners can make the role "the toughest job in the credit union," Jerving said. "As the loan officer and collector you have to keep a certain distance. You want to get to know the business owner, but if they run into trouble you don't want to be the person's buddy, because you may have to make tough decisions."
Outsourcing collections, the white paper notes, is not a good option, as third-party collectors do not have established relationships with the businesses.
Jerving added that both opportunities and risks are increasing. "The timing is right. There are a lot of experienced business lenders who are looking for work now."
Many laid-off workers are looking to start a business, but many also lack the business knowledge to make their operation successful, he reminded. Another issue: Cash flow is becoming a greater concern, since many larger companies that work with small businesses are delaying payment.
