Credit Unions: Shifting your approach to working with startups and their founders

In a country where a small number of large banks dominate the financial services landscape, Canadian credit unions have unique opportunities in front of them to access underserved customers or untapped markets. They are inherently more nimble and agile, they build strong and personal relationships with their members, and they’re well positioned to give advice to members who crave it.

Credit unions share those attributes with small businesses and startups.

If you are in management or a decision-making role at a credit union, you probably realize how aligned your values are with Canadian small businesses: a focus on building relationships with customers, improving service by being agile, cooperative principles, and supporting the local economy. Many people turn to startups when they feel underserved or underappreciated by big businesses, the same way they may turn to credit unions if they feel dissatisfied with their experience at a big bank.

And yet, despite this apparent compatibility, many credit unions struggle to attract startups and entrepreneurs into their membership base. Let’s look at why that is, and what can be done about it.

Risk Tolerance

As a credit union, you face the same realities as banks: some people are more risky to do business with than others, especially when it comes to lending and financing. Startups tend to have a higher risk profile than established businesses or individuals with steady income.

It’s up to your credit union to decide internally what your risk tolerance is. But when having those conversations, remember that so much has changed over the past two years. In the COVID era nothing in the economy stands still.

We are in the midst of a massive and uncomfortable churn in the workforce; seasoned workers are retiring earlier than they had planned to, young people are getting laid off or resigning in large numbers. Many of these people have decided to start something of their own as startup founders, contractors, or freelancers. Their cash flow and revenue may be inconsistent, and thus you may be hesitant to take them on as a member.

What can be done about it?

The best way for you to get into this largely untapped market is to re-evaluate your internal risk profiling process, and your staff.

The typical risk profile that made sense before COVID may not make sense now. While you should certainly not do business with every budding entrepreneur or startup that approaches you, spend time getting to know the founder and understand what they’re trying to do. Look for opportunities that you believe in and ensure that your credit union has established policies surrounding the amount of lending you are willing to do in this space, to help ensure you can work within an approved risk tolerance.

If necessary, build out your own internal team with the right skills and abilities, people who can digest information that startups are providing and that are able to look past historical financial information to understand future oriented potential, while knowing what questions to ask or when to dig deeper. Find people who understand contract work, gig work, and the changing nature of the economy. They can ask the right questions and help you spot opportunities.

Startups need advice, and credit unions are great at giving advice when they have a strong understanding of the industry and company’s needs. Make sure your advisory team has the skills to capture the startup portfolio.

Storytelling and Corporate Positioning

Credit unions need to be innovative in how they approach community outreach and storytelling.

MNP released an eBook in December 2020 that shared strategies for growing membership among Millennials. Our data found that the demographics of credit union members is noticeably older than Canada-wide averages:

Credit unions will not become the go-to for startups, especially startups with younger founders, unless you diligently invest in building those relationships.

What can be done about it?

Conexus is a good example of a Canada-based credit union that has placed itself top-of-mind for startups and their founders.

Conexus, based in Saskatchewan, has formed a business incubator that is designed to catalyze startup growth, providing access to the supports required for founders to be successful. They have also focussed on supporting this ecosystem through the formation of their venture capital (VC) fund and most recently their Emmertech fund. Through their Cultivator initiative for startups and a national VC fund for ag-tech businesses, they have positioned themselves as a champion for entrepreneurship. Many other credit unions recognize this opportunity and have showed their commitment by becoming investors in the Emmertech fund, including connectFirst Credit Union, The Co-operators Group Limited, Gulf and Fraser Fishermen’s Credit Union, Innovation Credit Union, UNI Financial Cooperation, Interior Savings Credit Union, Prospera Credit Union, and Libro Credit Union.

These types of initiatives bring in new business by breaking down barriers and getting people’s foot in the door. Startups and small businesses who are exposed to the Conexus brand through Cultivator will likely consider Conexus first when they need other traditional services like new accounts or loans.

At the end of the day, startups and small business owners will go to whatever financial institutions understand their needs and agree to work with them. If you can position yourselves as the right fit for startups, through storytelling and community engagement, the opportunities will come to you.

Seizing opportunities

At MNP, we have long admired how credit unions approach challenges and opportunities with a spirit of cooperation — after all, cooperation is a key part of your business model. With a fresh outlook on how to approach startups and assess the risks that come with working alongside them, you can tap into a largely untapped market.

Contact

To learn more about how MNP can help you get started, contact Annette Bester CPA, CA, CIA, ICD.D at [email protected] or 306-664-8327.