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SBA Promotes Credit Union SMB Lending

When it comes to small business (SMB) lending, the top two contenders for business owners are banks and alternative financiers or online marketplaces. Credit unions (CUs), meanwhile, are rarely the first point of contact for small businesses in need of capital or other financial services, according to a recent Federal Reserve report. As it turns out, credit unions may not see small businesses as their first point of contact in customer outreach efforts, either.

The U.S. government wants to change that. Last month, the Small Business Administration (SBA) and the National Credit Union Administration (NCUA) announced a collaboration that aims to promote credit unions’ participation in the SBA small business lending program, via webinars and training events aimed at broadening the credit union sector’s small business lending efforts.

In Fiscal Year 2018, not one of the 100 top lenders participating in the SBA’s 7(a) loan program were credit unions, reports in American Banker said last month. Fewer than 200 credit unions in the country made an SBA loan in the past 16 months, while the number of credit unions participating in the program in Fiscal Year 2017 fell by 1 percent.

According to National Association of Federally-Insured Credit Unions (NAFCU) Director of Regulatory Affairs Ann Kossachev, recent changes in requirements for participation in the SBA lending program have opened doors for credit unions. The SBA and NCUA collaboration is a three-year agreement that aims to build upon that momentum, and heighten CUs’ share of the SMB lending market.

“Credit unions are getting more involved in small business lending, and [the] SBA is an important tool,” said Heritage Federal Credit Union Director of Business Services Michele Kors in an interview with the publication. She added that the credit union would only provide small loans to businesses that have expressed a struggle to get approved for low-value loans from banks.

Not everyone is on board with the effort, though. According to ValueBank Texas CEO Scott Heitkamp, the SBA’s initiative is “another attempt for credit unions to get [into] the commercial lending business,” raising concerns that credit unions could take away market share from banks.

Credit Unions In Growth Mode

The government’s efforts to ramp up credit union lending for small businesses come at a time when the credit union industry as a whole is focusing on growth and strengthened competition in the financial services space. In the most recent PYMNTS Credit Union Innovation Playbook, a collaboration with PSCU, credit unions highlighted their investments in technological initiatives to promote digitization and operational efficiency.

Larger credit unions in particular are more likely to invest in data analytics and data security technologies, while anti-money laundering (AML), mobile payments and digital payments also emerged as top investment focuses for CUs. Like banks, credit unions are increasingly collaborating with FinTech firms to drive adoption of new technologies, with 48.5 percent of credit unions surveyed saying FinTech firms are their most important solution partners.

Yet, as credit unions invest in data analytics and other technologies, small business lending does not appear to be top of mind for these players. Rather, payments and security have emerged as top focuses, according to the Credit Union Innovation Playbook.

“CUs understand that innovation is key to both staying ahead of their competition, and attracting and retaining numbers,” the Playbook said. “Such investments also ensure [that] these [financial institutions (FIs)] do not fall victim to fraud, and allow members to remain confident that their financial needs will be satisfied. … Knowledge is power, and analytics-driven CUs appear to be on the path to better understanding and enhancing members’ financial experiences — and improving the security of their own operations.”

It remains to be seen whether credit unions’ investments in data analytics and other technologies will eventually expand to their small business financial services and lending operations. Last year, data from Biz2Credit found that lending to small businesses by credit unions had “stagnated.”

“Not much for them has changed in the past couple of years,” said the firm’s CEO Rohit Arora in a statement at the time.

However, as the SBA collaborates with the industry to heighten CUs’ share of the small business lending segment, there is undoubtedly opportunity for credit unions to expand their focus on small business customers, and wield their investments in data analytics and security to further strengthen SMB lending efforts.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.