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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:

1. Money. Small businesses need money, when they want it.
2. 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.
3. 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. 

Filed under: Credit Unions, Financial Services Tagged: Credit Unions, Member business lending

For SMBs, managing banking and payment processes is not as easy — or as secure — as it should be. So, coming out of stealth today is a Boston-based startup called MineralTree that is looking to fix both of these problems. Tomorrow, at the Small Business Banking Conference in Scottsdale, Arizona, MineralTree will officially launch its first product: A cloud-based banking and payment solution designed specifically for SMBs.

Backing the startup in its mission to create an easy payment solution for small businesses is a cool $1.5 million in seed funding, raised from .406 Ventures, which has enabled MineralTree to develop its payments solution and make its initial hires, partnerships, and customer acquisitions. The most notable of which is the startup’s partnership with Silicon Valley Bank in Santa Clara, California — the first financial institution to implement MineralTree’s solution and offer it to its SMB customers.

So, MineralTree is off to a good start, but you might be wondering why the world needs another payment solution, and why partnering with the big, bad banks is going to ingratiate MineralTree to your ranks. Well, the thing is that there are all kinds of laws and protections in place for your average, everyday consumer to protect them from fraud and those punks who love to steal personal information from your browser. On the flip side, enterprises and big businesses have the cash to invest in more sophisticated payment systems (i.e. ERP software) to secure their payments. But, for the 2.5 million SMBs in the U.S. — those with annual revenue between $500,000 and $50 million — the options aren’t so stellar.

Most SMBs use ad hoc processes that are manual, paper-based and therefore inefficient and inherently less secure. What’s more, controls, oversight and approvals can be time-consuming and a pain in the ass. In terms of security, for consumer accounts, individuals have 60 days to notify their bank of unauthorized transactions (in the case of fraudulent activity), whereas business account holders have only one business day to report the attack — after that, the bank is no longer liable.

In one case, MineralTree Founder and CEO BC Krishna said, a small business saw millions of dollars worth of fraudulent withdrawals, yet even after following their bank’s instructions for reporting the attack, they were found liable and were not reimbursed. This kind of problem, in 2011, is unacceptable, so Krishna and company devised a solution that is layered over existing accounting applications and integrates directly with the bank’s payment systems without making changes to either.

MineralTree’s Accounting Manager app is a web-based add-on to the SMB’s existing accounting system that businesses can use to manage payables, including entering payment information, associate payments with backup documents, along with the ability to prioritize, recommend and submit payments to the CFO or business owner for approval.

The startup then provides a separate “CFO App” that lets the financial officer, or the executive in charge, to approve and release payments. Both accounting manager and CFO apps are available on the iPad or via a secure web app. In turn, the bank used by the SMB gets a third web-based app that enables the financial institution to manage its MineralTree users.

Each of the three apps are linked to the startup’s payment server, which coordinates and manages all payment functions in the system, between customers, the bank, and payment service providers, etc. While it may sound like there are a lot of moving parts, in reality, the MineralTree solution provides an all-in-one, universal platform for all the payment channels an SMB or bank uses, whether it be check, ACH, wire, payment cards, PayPal, or mobile banking.

The SMB does not pay MineralTree anything to use its system, instead MineralTree monetizes through its partnerships with banks, allowing the bank to choose at what price it will offer MineralTree’s apps to its SMB customers. Though Krishna said, on average, the cost will work itself out to approximately $75 a month.

Considering the solution applies modern electronic document-management technologies to eliminate paper trails and a simple, auditable workflow, as well as reduced risk of fraud by automatically matching bank statements with general ledger entries, and increased security — it seems like a small price to pay for the ROI.

What’s more, banks and financial institutions are not particularly happy with being disintermediated, and PayPal is a good example of this. Merchant receiving has, by and large, been taken over by PayPal — a third party service not controlled by banks. However, MineralTree is focused on business sending, and its solution inherently allows banks to retain control over this process, while making money by offering the startup’s enhanced functionality to their business clients. That revenue stream should be enough of a value proposition for banks to get on board.

Unfortunately, though, for those SMBs who want to take advantage of the service, they’ll have to wait until their bank signs on board — there’s currently no workaround option for SMBs. But Krishna said the team is working fast and furiously to convince banks to adopt so that small businesses won’t have to worry for long about this hurdle.

MineralTree’s payments platform is definitely niche, but for the 2.5 million SMBs currently operating in the U.S., this has the potential to solve a lot of problems inherent to the paper-based and snail-slow payment, approval, and accounting processes many are currently working with. It will be interesting to see if the team can convince the big banks that this is a workable solution for their SMB clients.

For more, check out MineralTree at home here.