Credit union interest is growing in offering member business loans, or MBLS, even though strict regulatory limitations still exist. The lending rules are clear, but the amount of MBL dollars available differs based on a credit union’s size and the makeup and performance of its overall loan portfolio.
With fewer MBLs available compared to other loans, the ones credit unions do issue should be given to well-performing entrepreneurs with the greatest need, and who can do the greatest good with those funds for their community. In our minds, Hispanic-owned businesses should be top contenders when credit unions make their MBL decisions.
Does that surprise you? It shouldn’t. Hispanics are one of the country’s fastest-growing population segments, and also one of its most entrepreneurial. Moreover, loans to Hispanic-owned businesses are being increasingly targeted by banking industry competitors in a way that is frictionless and culturally relevant.
A 2018 Gfk Social and Strategic Research study surveyed Hispanic and non-Hispanic business owners about their beliefs and practices. These results may surprise you.
* Hispanic business owners are significantly more confident in overall economic growth than their non-Hispanic counterparts. In 2019, 68 percent of Hispanic owners believed their local economy would grow compared to 54 percent of their non-Hispanic counterparts. Although slightly lower, faith in national economic growth measured 59 percent and 55 percent, respectively.
* Concurrent with their optimism, Hispanic business owners raised greater levels of concern over the rising cost of doing business. Those concerns included everything from increasing health care costs (70 percent for Hispanic owners versus 63 percent for non-Hispanics) to continued strength of the U.S. dollar (59 percent versus 42 percent, respectively) to credit availability (45 percent versus 29 percent, respectively). Such cautionary concerns added to their overall optimism place Hispanic business owners in a stronger and more realistic position to effectively compete in an open marketplace.
Hispanic business owners surveyed about their future plans again outpace those of their non-Hispanic counterparts.
* In 2019, 74 percent of Hispanic-owned businesses expected to increase revenues, compared to just 57 percent of their non-Hispanic counterparts.
* For the same year, 51 percent of Hispanic owners plan to hire more staff, compared to 26 percent of non-Hispanic owners.
* Finally, 28 percent of Hispanic owners say they plan to apply for loans, compared to only 14 percent of their non-Hispanic counterparts.
This all adds up to greater optimism and market-readiness by Hispanic-owned business, 87 percent of which planned to expand their enterprise in 2019. It also means a greater need for available capital to help those businesses reach their lofty, but eminently achievable goals.
Credit unions need to play an active role in this process through member relations and MLBs. Your Hispanic members,a highly motivated and growing market segment whose successes will benefit both sides of the lending equation, are relying on you.Leave a comment
In an article ranking the best cities for Hispanic entrepreneurs, WalletHub asked a panel of minority-business experts about the biggest challenges faced by Hispanic entrepreneurs. Nearly everyone mentioned access to capital and financial education.
“There is a clear issue with lack of access to capital to start and grow their venture,” said Pedro F. Moura, an MBA candidate at the Haas School of Business at University of California. “This is also influenced by cultural aspects in which Latinos would rather rely on family and friends for funding than outside investors. Plus, limited financial education also plays a crucial role in understanding the funding that could be unlocked by entrepreneurs.”
What does this mean for credit unions?
This means Hispanic communities represent a huge opportunity for credit unions to grow their lending business – and become those communities’ preferred financial provider. If there is a known preference for borrowing from family and friends, the question for credit unions becomes, How can we build and nurture a similar relationship with Hispanic members?
Below are a few strategies to consider.
Offer small business-friendly loans. Small-dollar loans or Small Business Administration (SBA) loans up to $5,000 can be a great way to help entrepreneurs get their ideas off the ground. With an SBA 504 loan, for example, a borrower may only need 10 percent of equity, rather than the 20 percent required with a more traditional loan. Also, the loan is normally divided into two parts. One, which tends to be 50 percent of the loan, is held by a lender. The rest is held by nonprofit groups, such as the Certified Development Corporation, with this portion backed by the SBA.
Provide microloans. Microloans are typically very small (under $500) short-term loans with a low interest rate, extended to self-employed individuals, new startups with very low capital requirements or small businesses with only a few employees. Microloans can be a good source of funding for a business to hire its first employee, cover startup costs or purchase initial inventory.
Offer Individual Taxpayer Identification Number (ITIN) loans. ITIN loans are designed to help people who have a tax ID number but are not eligible for a Social Security number. Credit unions see the possibilities in serving a population that is not being served well by traditional financial institutions and they understand the value of inclusivity.
Provide lines of credit and credit-building loans. During the early stages of developing their companies, entrepreneurs may not have diversified enough to generate a constant positive cash flow. Lines of credit accommodate the seasonal credit demands of businesses along with ups and downs in cash flow. They also enable entrepreneurs to purchase inventory in anticipation of future sales. Credit-building loans, on the other hand, can help entrepreneurs build their credit as they work to grow their business.
Offer small-business financial education. Even the most robust small-business lending program can be ineffective without the right education plan in place to help entrepreneurs understand their options and select the right loans for their businesses. Ensure your marketing and education materials are available in Spanish and are culturally relevant to Hispanic populations.
Build community partnerships. One of the best ways to expand your credit union’s Hispanic entrepreneur outreach efforts is to partner with organizations that offer small business assistance for Spanish-speaking entrepreneurs. Examples include local Hispanic chambers of commerce and small business incubators.
Credit unions desiring to be Hispanic entrepreneur-friendly should work to build the right mix of lending products supported by a strong financial education program. Those that get it right will not only provide a much-needed service to Hispanics in their communities, they will also benefit themselves through lending and membership growth.Leave a comment