The checking account-not the loan-is the basic building block of member business services.

When serving the 23 million small businesses in the U.S., credit unions would do well to remember that lending is only part of the business services picture-and a small part at that, many observers say.

Findings by Novantas, a New York-based financial services consulting firm, indicate that 75% of the profit from small-business services comes from deposit relationships. Novantas arrived at that figure by analyzing data from roughly four million small-business banking customers.

"Another way to look at this," explains Novantas director Sherief Meleis, "is that most small businesses don't need loans. Many, of course, will need a loan at some point, and they will give their banking business to institutions they know can offer credit when they need it. But at any given time, 75% to 80% of small businesses are deposit-only customers."

Despite that, financial institutions often focus first on loan products to attract business members, figuring that other service relationships will follow. That strategy may work, Meleis notes. But bear in mind, "It only will work for the 20% to 25% of your customers who need a loan," he adds. "You must have something else to offer to the rest of them. And that 'something else'namely deposit services-is very profitable."

Does that mean a credit union wishing to reach out to business members should place as much, or perhaps even more, emphasis on deposit services as it does on loans?

The answer depends on the businesses your credit union plans to serve. "If you're in a community with a bunch of small manufacturers and construction companies," Meleis points out, "then a deposit-driven strategy won't work as well because those businesses have a heavy need for loans. But if you intend to serve mostly serviceoriented companies, a deposit-driven strategy makes a lot of sense."

A few basics

The types of deposit and other services a credit union offers must hinge on the nature of the businesses it serves. Among the basics are business checking, savings, and money market accounts. "For many small businesses, the financial services they need aren't that different from consumers' needs," says Novantas principal Jason Hardgrave. "So initially you might just make changes in how you package your existing products."