Meet Entrepreneurs Where They Are

Why your next business loan may come from a community college event, an incubator partnership, or other outside resources.

Only about one in five credit unions today participate in business lending of any kind, with a much smaller portion focusing more exclusively on startup and entrepreneur-type clientele. But for institutions that do have this goal, connecting with these individuals and facilitating that critical juncture between idea and execution or what is and what could one day be; is of the utmost importance.

Risk remains an ever-present concern, yet these institutions know the right loan made at the right time could potentially create the next big community or national employer, help establish its next SEG or technology partner, or generate other far-reaching benefits.

Here are four often-overlooked areas through which credit unions can establish connections within the entrepreneur and small-business community.

#1; Online

For those starting out in this space, log on and explore some of the burgeoning social media sites geared toward startups and entrepreneurs. This is a great way to both connect with initial opportunities as well as better understand the needs that exist in your own footprint and beyond.

#2; Incubators

Business incubators have become a reliable destination for cooperatives looking to facilitate business creation, enhance local employment prospects, and establish a pipeline for new loans. Although fledgling businesses do have a higher failure rate than more established counterparts, the proper<ahref=”” target=”_blank”>amount of mentorshipcan help these young businesses succeed. Plus, as theNew York Times points out, assessments of incubated business viability typically fail to account for the many successful companies that were reformed, realigned, or bought out by larger peers in mutually beneficial acquisitions.

Good underwriting and sound decision-making is a real necessity here, but access to these groups has already proven valuable for many cooperatives, including Hope Credit Union($186.7M, Jackson, MS), which recently partnered with the University of Arkansas at Pine Bluff to build a branchwithin the school’s off-campus business incubator facility.

#3; Community Colleges And Trade Schools

Everyone loves the story of the self-made millionaire, which might explain why in 2011, PayPal co-founder and early Facebook investor Peter Thiel announced that his Thiel Foundation would offer select students $100,000 to drop out of high-cost universities and start their own business. However, several years later, this experiment has been met with only a few measured successes, reports Forbes.

For those entrepreneurs who do struggle with the high cost of public or private university tuition, local education alternatives are proving to be a more effective middle ground than the go-it-yourself mentality promoted by Thiel’s organization. According to Michael Mazerov at the Center on Budget And Policy Priorities, Nascent entrepreneurs tend to create their businesses where they are; where they are familiar with local market conditions and have ties to local sources of finance, key employees, and other essential business inputs.

Likewise, local schools and organizations might also prove more accessible to credit unions than larger universities with more established ties and alliances.

#4; Your Peers

Several new companies such as Oculus VR; a maker of wearable 3D video game screens that was recently acquired by Facebook; have achieved significant growth and success through crowd funding.Although credit unions can’t mimic this model directly, multi-owned MBL credit union service organizations (CUSOs) are an institutional counterpart that allow multiple credit unions with a shared vision to fund traditionally unfeasible or unobtainable projects while dispersing risk.

Many of these projects have focused more on large-scale commercial activity, but there’s potential to apply the SEG model to small business and entrepreneur lending, particularly within in a shared region, industry, or other demographic, such as credit unions with a high percentage of military, low-income, or technology-oriented membership.

April 23, 2014

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