Many folks in the credit union industry are lobbying for an increase in the MBL cap from 12.5% to 25%, and to raise the ceiling on the definition of a microloan from $50k to $250k.
Without getting in the political issues involved here, there is this question; If the lending caps were to be loosened, would credit unions be well positioned to provide banking services to small businesses?
In the research my firm has done on small business banking, we’ve found that there are three things — to varying degrees — that small business owners are looking for from the banks (or credit unions) they do business with:
- Money. Small businesses need money, when they want it.
- Technology. Not all, buy many small businesses put a high priority on a bank’s ability to offer technology in the form of online and mobile banking, remote deposit capture, invoicing, cash management, and other technology-driven services.
- Industry expertise. A third dimension important to small business owners is the extent to which their bank (or credit union) has expertise and resources specific to the industry they’re part of. Specifically, they want to know that their bank can help them track, report, and forecast cash flows.
Are Credit Unions Ready To Serve Small Businesses?
With the influx of deposits that credit unions (well, at least some of them) have experienced in the past couple of years, the availability of money to lend may very well be there. Check.
But I’m not so sure the technology capabilities are in place. While the online banking capabilities are there for consumers, when Aite Group surveyed credit unions recently, only one in five had an online banking platform dedicated to business banking. In addition, Aite Group research has found that credit unions have historically been much slower adopters of remote deposit capture than their bank counterparts.
CUs shouldn’t deceive themselves into thinking that their “service” advantage translates into industry expertise. I’m skeptical that many credit unions have really figured out which industries they have a strong competency in, or should have a strong competency in. Most of the banks (large ones included) don’t know this either.
Fortunately for CUs, this is typically the third criteria used by small businesses when choosing a bank (or credit union) to do business with.
The small business reality is that availability of funds is priority number one. If they find someone willing to lend them money, they’ll take it and move their business there.
So, with a loosening of the MBL cap, credit unions will probably stand to gain some significant new business. Whether or not those loans turn out to be good loans, and if they can keep those relationships for the long term is another story.