Beware: Business Lending Myths

By Alan D. Theriault, President, CU Financial Services

Beware of business lending myths - they may keep you from seizing the opportunity to better serve your community and members and cause you to miss out on the rewards of business lending. Also, some myths may cause your business lending program to stumble, or catch you or your board off guard.

Myth #1: "Start small". A successful business lending program requires investment and talent. Originating, processing, and collecting a small or micro-loan can take as much time (or longer) than a loan 10 times larger. The efficiencies generated by an initial focus on larger real estate secured loans helps generate the revenues to pay for future program expansion, and service to smaller borrowers.

Myth #2: "We’ve never had a loss on our business loan portfolio". Some business lending evangelists claim a perfect record making business loans. However, peel back the onion and you find, it’s a matter of the "definition" of loss. A high profile foreclosure that results in extended families losing their homes generates a loss to the institution and community - a loss of members, credibility, and the wages paid to employees to fix the problems. Responsible lenders stay humble and strive for deals that provide benefits to both borrower and lender. A business loan portfolio brings risks that need to be managed.

Myth #3: "We need a new core processing system for business loans". Business loans can be structured to fit your existing system. If you service home equity & unsecured loans, you can service business loans. If your volume is big enough, or you have multiple lenders, you will need a "front end" data base to keep track of collateral, guarantors, vendors, and documents, but this doesn’t have to break the bank.

Myth #4: "Our membership and the community wants this service and we’ll be ‘swamped’ with business". After launching a program, you may be "swamped" with loan requests - most you should deny; even bankers will send you applicants - their turn downs or borrowers in trouble. Solid loans take work and "salesmanship" to generate. Many business owners have doubts that a credit union can make business loans. Program execution needs to be expert in order to build credibility. You are not the only game in town - banks across the country are making $100,000 + unsecured loans in less than 24 hours by using specialized decisioning models.

Myth #5: "NCUA encourages business lending". The rhetoric of NCUA’s Board members takes time to filter down to the novice examiner who can turn your credit union into a CAMEL 4. Most NCUA examiners are new to business lending. Some high profile failures related to business lending are bound to occur - they have in the past. A knee jerk reaction to these failures, negative economic trends, or new NCUA management could spell trouble unless your program is bullet proof. Take the time and invest the money to hire good staff and advisors.

The rewards of business lending are large. High yielding, well secured, long term, adjustable rate business loans can also result in core deposits, which would otherwise be unavailable. A well planned program can also help a credit union transition into a dynamic community institution.

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BLP Solutions

A cost effective data collection solution for small business lenders. Save time, money, and stay in regulatory compliance for a fraction of the cost of most programs. The simple design and common platform allows your staff to make design changes as your needs change, or take advantage of various custom support options. The software is available for free to clients enrolled in a CU Financial Services business lending advisory program.

Key Benefits

  • Track contacts, applicants, vendors, and collateral.
  • Reports that keep you informed, in compliance, and speed document follow-up.
  • Link to image files or word processing documents.
  • Works with multiple lenders, loan processors, and users.
  • Make your own reports and form changes or let us help.

 

Cost: $3,950.

30 day money back guarantee

Free to our Business Lending advisory clients

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Business Lending Capabilities

CU Financial will investigate the feasibility of business lending for your CU and, if appropriate, establish a turnkey program. CU Financial has helped credit unions start and expand their business lending; and we can help yours access the profitable programs offered by the SBA.

Experienced Lenders

The staff of CU Financial Services has put together business loan packages since 1975 and has worked with many types of community businesses in many industries including, farming, retail, restaurant, transportation, technology, construction, medical, and wholesale.

Technology Focused

Successful business lenders will need access to technology to do their job efficiently, and like mortgage lending, many compliance and member service functions will become automated. CU Financial clients are leaders in using both paper based and automated business loan decision models. In addition, CU Financial offers a cost effective solution for handling data generated by a business lending program. BLP Solutions software help you stay in regulatory compliance and eliminates the need to upgrade your core processing system. Track contacts, applicants, guarantors, vendors, collateral, and documents. Link to processing, closing and post closing documents from your computer screen. Reports helps you stay on top of the pipeline, closings, and document deficiencies.

Plans - Policies - Procedures - Tools - Networks

Making it all come together is the goal of CU Financial Services. Get peace of mind knowing that an experienced team is involved in implementing this important and profitable program. Solve problems - don't create them when you decide to become involved with business lending.

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