Can Credit Unions Save Mainstreet From Predatory Lending?


During the last decade, the financial industry has seen a massive shift in how America’s mainstreet small businesses obtain the capital they need to grow. It is no surprise to most credit union executives that business owners usually turn to banks, fintechs and alternative lenders for necessary growth capital or operational cash flow.

Studies show that credit unions, as a whole, are less likely to be the first contact for small business owners who need a loan according to a recent Federal Reserve report.  With a few strategic adjustments, credit unions [with the right digital ecosystem in place] can now be poised for growth if they focus on this historically underserved segment of the commercial community.

Earlier this year, the Small Business Administration (SBA) and the National Credit Union Administration(NCUA) announced a three-year collaboration aimed at promoting credit unions’ participation in the SBA’s small business lending program. The program will use webinars and training events to increase the credit union sector’s small business lending efforts.

Slow traction on SBA LoansAccording to a May 2019 American Banker article, not one of the top 100 lenders participating in the SBA’s 7(a) loan program in fiscal year 2018 were credit unions. Fewer than 4% of all credit unions in the country made an SBA loan in the past 16 months, while the number of credit unions participating in the SBA Loan program in fiscal year 2017 fell by 1%. However, the National Association of Federally-Insured Credit Union’s (NAFCU) Director of Regulatory Affairs Ann Kossachev says recent changes in requirements for participation in the SBA lending program have opened doors for credit unions [to rapidly increase participation in this space]. The SBA and NCUA collaboration is a three-year agreement that aims to build momentum and heighten credit unions’ share of the SMB lending market.

A survey by The Federal Reserve showed that more than 70% of small business owners needed loans less than $250K. The NCUA said the average size of a business loan from a credit union was $212,000 according to a recent study.

The traditional value proposition

Credit Unions have shared a 96% satisfactory rate in 2018. Most of this stems from consistently highly ranked customer service reviews. Credit unions are also more willing to consider a broad range of factors, predatory lenders don’t, when underwriting a loan. Factors such as the performance of the business, and the member’s relationship with the organization, may increase lending viability for the average credit union. The opportunity to expand on these relationships is rapidly developing.

The opportunity

Organizations that currently do not offer a diversified portfolio of products to their small business community, are still in good shape since there are now a handful of partner organizations that offer a simple, end-to-end small business financing solution that can be augmented to current operations and launched relatively quickly. Lending-as-a-Service companies like StreetShares and bank operating system providers like nCino and Jack Henry work with financial institutions to expand their SMB servicing capabilities by leveraging intuitive digital interfaces and back-end automation for improved process efficiency. This is allowing many credit unions, CUSO’s, and related institutions to continue to develop stronger member relationships without taking on unnecessary risk.  Using a lending-as-a-service (LaaS) platform that delivers quality loans through a seamless digital experience is the quickest way for financial institutions with functionally outdated business loan processing capabilities, or none at all, to add value to their active small business member accounts. Some partners offer everything from extensive loan marketing expertise, to 24-hour funding turn-around, with live customer support managing every aspect of the member’s loan lifecycle. It is paramount that credit unions are able to create the ideal member journey through digital.

The next generation of borrowers, investors, and savers is here.

According to Tech Crunch’s index on millennial banking skepticism, 73% of millennials would rather handle their financial services through, Google, Amazon, Apple, PayPal  or Square. That’s largely driven by a less than satisfactory experience with the traditional banking model. Disruptive tech giants are only increasing their activity in the financial sector, by leveraging already established brands, and maintaining a focus on satisfactory user experience. A recent survey from the Millennial Disruption Index shows that more than 53% [of millennials] believe their banks don’t offer anything unique, and therefore, loyalty and relationship development with this demographic is difficult for traditional banks.  A superior customer service model, augmented with fresh tech-based solutions, is the future successful banking model.


Offering robust digital solutions is the main value proposition offered by today’s dominant predatory lenders. If credit unions continue to prioritize a high consumer satisfaction rating, digitizing their product offering should now be an important part of that process. In the end, maximizing on collaborations with the SBA, broadening their relationships with current small business members through diversified financial product offerings, and working towards an all-in-one complete banking platform is the best strategy for growth in the small business lending sector. Being able to offer all the services small business owners need and want in today’s economy will prepare most credit unions for rapid growth opportunities in 2020 and beyond.

Sanjay Bhaskar is vice president of Business Development and Partnerships for Reston, Va.-based StreetShares.

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