Top-Level Takeaways
- Tennessee Valley FCU’s small-dollar business loan has provided more than $5 million to local businesses.
- Since 2018, the credit union has hosted an annual grant competition to help local entrepreneurs, stimulate the economy, and create fulfilling jobs.
Small businesses make up 99.9% of all businesses in the United States and employ 61.7 million people — nearly half of the working population — according to the U.S. Small Business Administration. Yet, many aspiring and emerging small business owners struggle to find affordable financing.
To help its own local entrepreneurs, Tennessee Valley Federal Credit Union ($2.5B, Chattanooga, TN) developed a loan program in 2016 to help early-stage businesses transition into successfully operating enterprises.
CU QUICK FACTS
TENNESSEE VALLEY FCU
DATA AS OF 12.31.22
HQ:Chattanooga, TN
ASSETS: $2.5B
MEMBERS: 178,830
BRANCHES: 24
EMPLOYEES: 441
NET WORTH:12.1%
ROA: 1.56%
According to Tommy Nix, the traditional approach of requiring three years of tax returns and a three-year business history prevents those with good ideas from getting new businesses off the ground. Typically, these businesses need less than $50,000 to get started, making them too small for venture capitalists or angel investors. The smaller dollar amounts also mean these potential loans are often largely ignored by big banks, leaving new business owners borrowing money from friends and family or maxing out their personal credit cards at hefty rates.
At TVFCU, the Idea Leap loan offers small business owners up to $75,000 with flexible underwriting criteria and an expedited approval process. Borrowers must be referred by a technical assistance provider, such as the SBDC or another official collaborator, and must agree to work with that mentor throughout the life of the loan. Borrowers also give the credit union permission to communicate openly with their mentor to help get them back on track, if needed.
“That ongoing mentoring component is the piece that’s made the loan program successful,” says Tommy Nix, vice president of commercial lending for TVFCU. Nix also is a former banker trained in traditional commercial underwriting and a former counselor at the Tennessee Small Business Development Center (SBDC), an entrepreneurial support enterprise.
To date, TVFCU has made slightly more than $5 million in these loans and recently increased the maximum loan amount from $50,000 to $75,000.
From Loans To Grants
After standing up the small-dollar business loan program, Tommy Nix and TVFCU turned their attention to Idea Leap grants — reinvesting proceeds from Idea Leap loans to fund a grant competition.
Small business owners must complete a written application for the grant competition. Selected quarterfinalists submit a video of up to five minutes; from there, selected semifinalists participate in a site visit as well as provide their most recent year-end financial information and other business information. Finalists participate in a pitch night with the TVFCU Grants Advisory Committee —comprised of credit union employees and community members from each of the credit union’s regions — during National Small Business week the second week of May.
Business owners do not need to have a TVFCU account to enter the contest; however, the credit union pays all grants via direct deposit into a TVFCU business account.
Since 2018, TVFCU has awarded more than $300,000 to local small businesses through grants and scholarships. Now in its sixth year, the 2023 grant competition will award $175,000 in grants to small business owners that operate within TVFCU’s 17-county service area with three separate competitions in Chattanooga, Cleveland, and northwest Georgia.
Lessons And Advice
Previous Winner, Current Judge
“The Idea Leap Grant catapulted us three years into the future, and our revenue growth and new tour offerings reflects that,” says Briana Garza, founder of Chatt Taste Food Tours. “I’m a huge advocate of the Idea Leap program. TVFCU is truly a pioneer. How often are there grant opportunities like this one?”
One major change TVFCU has introduced to its grant program is to ensure all finalists walk away with a significant amount of money for their business. Initially, the credit union invited 10 finalists to pitch but awarded only the top five with substantial grants.
“We thought the competition would be helpful, but we found these business owners had invested significant time developing their pitches and the five who didn’t win were really disappointed,” Nix says.
Now, all grant finalists receive at least $10,000 to move their business forward.
Beyond expanding the number of grants and contest areas, the credit union also added a people’s choice award with a text voting option so the community can vote for a semi-finalist to move into the final round.
For credit unions looking for new ways to support small businesses in their local area, Nix advises starting small and collaborating with technical assistance providers.
“We didn’t reinvent the wheel,” Nix says. “We leveraged what was already there by partnering with the SBDC and other collaborators.”
That collaboration has driven much of TVFCU’s success, according to Nix.
“Having another set of eyes review aspiring businesses, weigh in on their merit, and help them pivot when needed is probably one of the greatest things we’ve done,” the VP says.
Lastly, Nix encourages other credit unions to consider CUSO partners that provide business lending support and hire people with commercial lending experience — both with a lender’s mindset and a credit or operations mindset.
“Look for ways to partner,” he says. “Start small and gain the expertise you need.”
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