Member Business Lending as a Source of Growth (Credit Union Conference Session Presentation Slides)
 

Member Business Lending as a Source of Growth (Credit Union Conference Session Presentation Slides)

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In this 2012 Strategic Growth Conference session, investigate ways that credit unions can take advantage of the current business environment and look to member business lending as a source of robust ...

In this 2012 Strategic Growth Conference session, investigate ways that credit unions can take advantage of the current business environment and look to member business lending as a source of robust and ongoing growth. We’ll talk about filling the void in small business lending, advantages credit unions offer small business borrowers searching for capital, leveraging technology in the lending process to minimize costs and maximize productivity, ways technology can enable credit unions that have never done small business lending to quickly build a program and strategies and tactics for deal sourcing. We will also look at the need for tracking analytics and ratios for both underwriting and monitoring. More info at: www.nafcu.org/biz2credit

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Member Business Lending as a Source of Growth (Credit Union Conference Session Presentation Slides) Member Business Lending as a Source of Growth (Credit Union Conference Session Presentation Slides) Presentation Transcript

  • Addressing Credit Union Challenges in Small Business Lending NAFCU 2012 Strategic Growth Conference Rohit Arora, CEO Biz2Credit 3/14/2012 © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Agenda• Biz2Credit Overview• Opportunities for Credit Unions in the SMB lending market• Challenges for Credit Unions in the SMB lending market• Case Studies: How Credit Unions can help small business owners• Next Steps © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Biz2Credit: Who we areBiz2Credit is a secure online community that connects small business ownersseeking loans with financial institutions willing to lend. Proprietarytechnology matches borrower requirements with optimum funding options,and business services, while managing the exchange of information anddocuments.• Funded over $500 million to date• Over 1,100 lenders on our platform• Have direct reach to our network of over 1.6 million small and medium sized business (SMB) owners• Community driven content, expert advice as well as regular updates on small business news• Rated by Entrepreneur.com as the top small business financing resource in 2012 © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Credit Union SMB loans continue to increase relative to Big Bank SMB loans Change in SMB lending Change in SMB loan approval percentage June 2010 – June 2011(1) January 2011 – January 2012(2) +8.7% ‐1.1% * Source: 1. “The Increasing Importance of Credit Unions in Small Business Lending”, James A. Wilcox, Sep 2011 2. Small Business Lending Index, Biz2Credit, Jan 2012 © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • High bank rejection rates represent an opportunity for Credit Unions to enter/expand their SMB share Our state‐by‐state analysis of rejection rates for well‐qualified existing customers* shows the scale of the opportunity… NEW YORK ARIZONA CALIFORNIA % % % 40 40 40 30 30 30Rejection rate 20 20 20 10 10 10 0 0 0 Note: * Big bank lending approvals to existing customers in business for more than 2 years, with $150k+ in revenues and a personal credit score of 680 or more © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Credit Unions have begun taking advantage of small business lending opportunities Outstanding MBLs reached record levels in 2011, indicating… $ Billions % change14 30.0%12 +23.3% 20.0%10 +15.1% +8.7% +10.5% 10.0% 8 0.0% 6 ‐17.4% ‐10.0% 4 2 ‐20.0% 9.2 11.3 9.3 10.7 11.9 0 ‐30.0% 2007 2008 2009 2010 2011N = 7,091 Outstanding member business loans 12 month growth Source: Callahan & Associates FirstLook, data as of 12/31/2011 © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • A changing regulatory environment will also affect the current environment for SMB loans • Applies to banks with $50Bn+ in assets Basel III • Raises the capital requirements for these institutions Regulations • This increases the cost of making loans for big banks, particularly SMB loans (a high risk classification) • All financial institutions must comply with over 400 new Dodd‐Frank regulations listed in the 2,300 page act Regulation • There may be additional compliance burdens for both banks and Credit Unions • Current law caps business lending at 12.5% of a credit Credit Union union’s assets Lending • A federal bill to raise the cap to 27% is currently going Limits through congress • News on the bill may come as soon as the end of 2012 © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Our lending index is driving increased awareness of SMB opportunities for Credit UnionsOur monthly updates are reported by gov’t agencies, and in trade press… © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • CU Challenges: Unfavorable Credit Markets• Lending criteria have been tightened at many financial institutions since the crisis, as lending has become riskier• Slow big bank response to the changing credit environment has left many small business owners unable to secure loans• Low rates limit the attractiveness of taking additional lending risk “… In 2011, the number of small employers obtaining credit from financial institutions was approximately the same as the two years prior. However, demand for credit increased in 2011, meaning more small employers were shut out of the credit market than in prior years. ...” National Federation of Independent Business (NFIB) Credit Union lending to their communities can provide a lower‐risk solution for local SMB owners , and reduce the pressure on banks to increase lending © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • CU Challenges: High Member Acquisition Costs• Many Credit Unions lack the marketing budget to effectively reach target SMBs• Credit Unions currently have no access to geographically granular data to reach local SMBs seeking loans• Likewise, SMBs seeking loans struggle to find lending institutions beyond their existing bank• Credit Unions currently lack the branch network and expertise to manage this challenge “… These are large costs in relation to the net interest margin and fees yielded by these accounts, which means increasing efficiency of acquisition has a big impact on bottom line performance and the rate of capital growth ...” Flowtracker Bank Analytics Targeting SMBs with specific attributes (e.g., credit scores, time‐in‐business, local geography, etc.) can reduce SMB customer acquisition costs © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • CU Challenges: Financial Knowledge Gap• A lack of financial understanding can inhibit entrepreneurs’ access to capital by making options seem limited and the lending market opaque• Small business owners have little visibility into how they can improve credit scores or address issues to ensure applications are not rejected• Current loan providers lack sensitivity to local SMB demands “... Access to capital continues to be the most difficult challenge for small business owners... potential entrepreneurs may lack the business savvy to articulate what they need in business terminology; and such inexperienced business persons may also fail to present a well‐thought out long‐range alternative plans ...” Financing Small Business Enterprises, Library of Congress Credit Unions can leverage their detailed understanding of the local community to bridge the gap between SMBs and financial lending institutions © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • CU Challenges: Member retention• Providing SMB loans can be a good way to strengthen the relationship between Credit Unions and the communities and customers that they serve• Customers with existing deposit relationships may be a good entry point to the lending market for their Credit Unions• Reducing the complexity and timing of loan applications, as well as annual verification of accounting and credit data for existing loan customers, strengthens these relationships further “… They’re missing out on an opportunity... Small business owners want a relationship. They want to be able to talk about ideas. They want a partner and credit unions can offer that ...” Dorinda Edwards, President/CEO of American Partners FCU (via Credit Union Times) Credit Unions should utilize their knowledge of their community to provide targeted SMB loans & take advantage of technology for ongoing loan mgmt © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • CU Challenges: Ongoing risk management• The threat of loan default or the withholding of interest payments can become a significant barrier to SMB lending by Credit Unions• Many small business owners do not contact their financial institutions about the threat of default until their financial situation has deteriorated significantly• Closer relationships and information sharing with customers can allow Credit Unions to monitor outstanding loans, providing an “early warning” and reducing risk “… A potentially powerful addition to annual financial data on SMEs is...evidence of company default on credit agreements and/or trade credit payments or whether the firm is late to file its financial statements ...” “The Value of Qualitative Information in SME Risk Management” Altman, Sabato & Wilson Credit Unions can continually monitor the accounts and filing information for their SMB loan customers, allowing increased default risk to be identified early © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • CU Challenges: Resource constraints• Significant resources are required for document collection and processing in assessing loan applications• High cost of document processing and storage for a large number of applications can limit Credit Unions’ ability to process loans and renewals• Current document collection systems represent a bottleneck in the loan review process as sources (e.g, IRS) can take weeks to provide pertinent data “… Document processing represents a major opportunity to reduce costs. ... many financial services institutions work with hard copy documents and spend millions on courier services to overnight documents during account initiation. ...” Xerox Consulting Credit Unions can take advantage of existing technologies to optimize the loan application review process and reduce processing times © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Success Story:The opportunity for a Credit Union to step in when a bank says no…• Future Green Studio is a design‐build firm in Brooklyn, New York specializing in landscape urbanism and green roof design• The founder was denied a commercial loan from TD Bank in both 2009 and 2010 ‐ Information on other small business loan options was limited ‐ Information about local lenders was limited• Biz2Credit connected the founder with Brooklyn Cooperative Federal Credit Union, where he was able to secure an $80,000 business loan“… Biz2Credit gave us the opportunity to grow as a small business when we were sorely in need of funding to facilitate our growth ...” David Seiter, Founder, Future Green Studio © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Success Story:The opportunity for a Credit Union to provide financing for community businesses…• A small business owner required financing to fund the development of four Baskin Robbins franchise locations in Scottsdale, AZ• The founder was denied a loan from other lending sources for six months• Biz2Credit connected the founder with Mountain America Credit Union, where he was able to secure a $300,000 business loan• The relationship allowed the loan to be financed without real estate collateral ‐ The loan was secured under the SBA 7a program for aspiring small business owners © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Summary of SMB lending opportunityThree kinds of Credit Union SMB lenders: • Currently not active in lending • Doing some lending • At or near the 12.5% asset capThe current market status and new technologies will help: • Get started with SMB lending cheaply, quickly and easily • Increase qualified member loans significantly • Enhance the productivity and lower the risk of existing operations © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Is your Credit Union already lending to SMBs? Sign up to contribute to a special report on SMB lending with Time magazine Contribute to the Biz2Credit blog, which houses user‐generated expert opinions on the current state of SMB lending © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Next Steps: Addressing the SMB lending opportunity • Join us for coffee at 3PM • Stop by our booth for additional details on how to solve the challenges discussed today! • On March 27 we will be hosting a Webinar © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential
  • Q&A © 2010, Biz2Credit, LLC. All Rights Reserved - Proprietary and Confidential