MADISON, Wis. (9/12/13)--Many credit unions want to enter or expand business lending, and one opportunity to do so is through offering microloans, according to a new Filene Research Institute study.
"Microloan Feasibility Study: Can Small Business Lending Become Big Business For Credit Unions?" by Dave Grace, managing partner, Dave Grace & Associates, indicates that market conditions, borrower demand and lending characteristics suggest that microloans and credit unions may be a good match.
The implication for credit unions is that microloans are exempt from credit unions' regulatory cap on business loans, and credit unions can develop win-win relationships with microborrowers.
"Microlending can be profitable, but like most new business lines it will take adjustments and understanding of the market to succeed," Grace said.
Microloans are small-business loans for up to $50,000. Micro loans are generally used for start-up cash but are sometimes given to newly launched small businesses for working capital.
To prepare for microlending, credit unions should partner with small-business development centers, other microlenders, the Small Business Administration or business chambers to drive loan demand.
The report said credit unions also should consider:
Lessons from international microlending can help credit unions mitigate the higher risks of microloans, compared with traditional loan products.
Lessons learned include:
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