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