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Micro Small Business LoansScott Butterfield, Your Credit Union Partner
Why Microenterprise?
Motivation Behind Starting a Microenterprise• Supplement low wages• Flexibility to balance home and work• Employ Laid-off worker skills• Opportunity for Individuals with disabilities• Starting a business is preferable to minimum wage• For many low-income people, self-employment offers the chance to find
fulfillment that is rarely possible with their options for low-wage labor.
Microenterprise is Different
• Products and services are less complex• More education and assistance needed• Lower Capital Investment < $35K• Demographically
• Low – Moderate Income• Women• Minority
Training and Education
• Credit repair, savings and reinvestment in the business• Budgeting and financial management• Business planning• Marketing planning• Licensing and taxes
Technical Assistance
• Ongoing assistance and follow-up• Access to computers, printers and software • Resource library• Conference and meeting space
Products and Services
• Microloans• Small business loans• Basic checking & savings• IDA• Online banking• Merchant services
Potential Partnerships
Local Partners• Small Business Development Centers (SBDC)• Economic Development Corporation (EDC)• Women’s Business Centers (WBC)• Chambers of Commerce• University/Colleges• SBA
Micro Small Business Opportunities for CU’s
• Growth from unserved market (with high loan demand)• Profitability• Service aligned with philosophical roots• Grant funding to increase capacity• PR and greater brand recognition
Building a Sustainable Model
The Business Model
• Higher average loan yields / fee income• Higher operating / provision expenses
Higher income offsets higher expenses
Better ResultsHigher organic loan/member growth, Higher ROA, Greater Relevance
10
Best Practice 1
LIDNON-
LIDCAPITAL ADEQUACY
Net Worth/Total Assets 9.66 11.10EARNINGS
Return on Average Assets 0.63 0.52Yield on Average Loans 8.62 4.85Yield on Average Investments 0.57 1.51Fee & Other Income / Avg. Assets 1.04 1.43Cost of Funds / Avg. Assets 0.88 0.39Operating Exp./ Avg. Assets 5.90 3.69Provision For Loan Losses 0.86 0.40
Latino Market – Used Auto Focus
Best Practice 2
CDFINON-CDFI
CAPITAL ADEQUACYNet Worth/Total Assets 17.66 12.72
EARNINGSReturn on Average Assets 1.78 0.30Yield on Average Loans 10.40 5.59Yield on Average Investments 1.21 1.31Fee & Other Income / Avg. Assets 2.54 0.97Cost of Funds / Avg. Assets 0.16 0.30Operating Exp./ Avg. Assets 7.12 3.54Provision For Loan Losses 0.81 0.27
Used Auto/Personal Loan Focus
CommunityChurchesCollegesHuman ServiceNFCDCUNCUACDFI
CounselingCredit BuildingLendingMentoring
HumanNCUA/CDFICommunity Partners
Operating expenses (development activities)Loan lossesCost of funds
Risk-based loan pricingHigher loan deploymentPast due fees
MemberAffordable creditCredit buildingAsset building
Credit UnionStrong earningsGrowthRelevance
CommunityEconomicQuality of life
Member facing staffLendingCollectionsPartner connections
Underserved GroupsLow incomeCredit challengedDisabledMillennialsMicro - small businesses
SegmentsConsumerSmall businessAffordable housing
In personCall centerOnlineMobilePartners
Key Considerations
• Community needs assessment and alignment• Mission/vision alignment• Leverage internal strengths • Risk management and regulator oversite