Credit unions, new ideas and new enterprises can be a good fit.
Economic news often focuses on big business—giant corporations and multinational firms—yet small businesses are the real engine of the Canadian economy. There’s another story that’s often under the radar too: how smaller companies and credit unions work well together.
In fact, the more than 200 credit unions across Canada are responsible for 11.9% of lending to small and medium-sized businesses, which account for 99.8% of all businesses in Canada. The credit unions’ share is comparable to the amount of business that the larger financial institutions among Canada’s big banks do with small businesses.
“Credit unions have always focused on the communities they serve, and small businesses are a huge piece of that,” says Annette Bester, national credit union leader at MNP LLP in Saskatoon.
There are lots of similarities between credit unions and small businesses—those with fewer than 100 employees—that make it natural to work with credit unions, Bester says.
Like small businesses, credit unions operate in a market dominated by big fish: the big banks. For small enterprises, it’s larger regional, national and global competitors. Both have to be nimble and agile, and they thrive on building strong personal relationships—businesses with their customers and credit unions with their members, Bester says.
“This makes credit unions well positioned to give advice to [business] members who crave it,” she adds. The current economy in particular offers new and interesting opportunities to work together; it’s volatile and uncertain, but so is the life of a dynamic start-up.
The new economy is exciting, and its growth relies on the energy and creativity of start-ups and smaller enterprises, and a direct, easy relationship with a credit union can be helpful, Bester says.
Small Business Member Strategy
“One of the things that has really separated credit unions from larger institutions over time is the level of personalized service and advice we offer to our members,” says Martin Kihle, VP/banking at $5.4 billion Libro Credit Union, with 110,000 members, based in London, Ontario.
“We hear a lot about the small things—it can be as simple as answering your phone and not putting a caller into a queue and making them wait, for example. At the same time, we also look for opportunities to identify where the businesses we work with can grow,” he says.
As long ago as 2009, credit unions across Canada banded together to develop a Credit Union Business Owners Strategy (CUBOS) to reach out to small businesses.
“The strategy looked at research so we could better understand smaller enterprises—how they navigate their businesses, their tips and tricks. The strategy also aimed to help us better understand trends in the marketplace,” Kihle says.
The strategy has been updated and refined over the years, and in 2018, CUBOS’ participating credit unions began partnering with U.S. research giant Gartner to make data and training available to credit union members on how to better serve small businesses.
The 2009 strategy document, called Making It Simple, laid much of the groundwork for guiding credit unions on how to strengthen their relationships with small businesses. It looked at the practices of four credit unions of varying sizes, including Libro.
Simplicity was a common theme—streamlining processes such as opening a business account, using plain language instead of banker-speak in documents, setting internal service targets with regular review to make sure they’re being met, and looking at where service can be improved.
In 2013, CUBOS commissioned IPSOS to look at how to meet the needs of small businesses started or owned by new Canadians. While some of its findings were not surprising—language barriers could be an obstacle, for example—the research also found that, “overall, lack of awareness and consideration of credit unions is the most important hurdle that must be overcome.”
This awareness level differed by region—it was lowest in Toronto, across all ethnicities and language preferences.
It’s understandable that small businesses might not have the time or inclination to find out more about credit unions, because they’re too busy, Bester says.
“Small businesses have particular challenges that are different from larger ones. They don’t have deep pockets; they don’t have tonnes of reserves. They’re either starting up or scaling up, and this takes funds,” she says.
Certain sectors, notably technology, often have more urgent needs as start-ups than more traditional businesses, and this requires credit unions to be imaginative, says Mary Weimer, chief advice officer at $6.7 billion Conexus Credit Union, Regina, Saskatchewan, with 134,000 members.
A few years back, Conexus CU noticed a lack of resources, space and funding available for Saskatchewan’s tech start-ups, which was causing many founders to leave the province.
Weimer credits Conexus CU’s former CEO Eric Dillon with noticing how the challenges faced by small-business tech entrepreneurs had a lot in common with credit unions, particularly those that serve smaller centres.
“The start-ups and the credit unions both may have everything going for them—a strong knowledge base, maybe a university with talented people nearby, but they feel they need to go to a big city like Toronto or Vancouver to take their company to the next level or raise capital,” Weimer says.
Cultivating New Ventures
Cultivator powered by Conexus is Canada’s first credit union-led business incubator and provides the resources, space, programming and mentorship to founders to help them launch, grow and scale.
“Saskatchewan is home to some of the fastest-growing tech start-ups in the Canadian prairies,” Weimer says. By the end of 2021, Cultivator incubated more than 80 companies that in turn raised $22.9 million in private capital, obtained $23.1 million in government funding, generated more than $14 million in revenue and created more than 300 jobs.
Conexus CU’s start-up successes include such companies as Citrus Technology, which helps youth camps organize their programs and quickly hit $1 million in sales, and Beautiful Mood, a Regina-created mood-tracking app that lets users easily journal their thoughts and feelings on their phones. Beautiful Mood hit more than 100,000 subscriptions after going live, with subscribers from all over the world.
“We think we have a unique approach to how we work with small businesses,” says Weimer.
“Cultivator is just part of our outreach and it’s targeted to a specific space to help our tech businesses.”
To address the lack of venture capital funding for Prairie start-ups, Conexus launched Conexus Venture Capital Inc., helping direct local capital to local founders, which in turn contributes to growth.
CVC manages two funds: CVC Fund #1 and Emmertech. CVC Fund #1 is a $32 million fund with investors that are a mix of credit unions, business leaders and a Saskatchewan-based retail venture-capital fund. It invests mostly in a portfolio of Saskatchewan-based high-growth companies, as well as a small number of non-Saskatchewan firms. Since launching in 2019, CVC #1 has seen a 38% internal rate of return and is performing in the top quartile of North American venture capital funds launched that year.
CVC’s other fund, Emmertech, is a $60 million fund that focuses on agricultural technology, or agtech. With farmers and growers depending on reliable yields, there’s little room for error in agtech. The industry requires companies that can build highly dependable products that deliver an immediate return on investment to the farm; as a result, they need investors to bet bigger and earlier than typically seen in the tech space.
Emmertech was built using an approach that put industry first, with investors that included some of Canada’s most innovative farmers, agribusiness owners and agriculturally centred financial institutions. Proper access to early-stage venture capital has helped Canada become a global leader in agriculture innovation.
“Our venture capital funds are not just helping fuel Prairie and Canadian start-ups, but also proof that credit unions across Canada are joining this movement into venture capital as cooperative values are reimagined for the technology space to benefit communities and members,” says Weimer.
Meeting Business Needs
Credit unions need to work hard to meet the sophisticated and constantly morphing needs of the different sectors, says Jane Button, regional vice president/small business and virtual solutions at Conexus CU. Credit unions are community based, which can give them the advantage of understanding the current market from a local perspective and some of the opportunities and challenges their members may be going through.
“Being a local cooperative helps us to understand the needs of our local members,” Button says. “Decisions are made right here, not in another province or country.”
Conexus CUs’s purpose is to improve the financial well-being of its members and communities, and as such, it looks continually at ways it can improve its products and services. “The financial well-being of our members drives everything we do,” says Button. “We choose to focus on the most appropriate advice for the members as opposed to grading performance on numbers or sales dollars. Doing what is right for the member ultimately maintains growth for Conexus and the local economy.”
As members and communities grow, Conexus CU is taking an innovative approach to how it can support its members differently. Flexible thinking is valuable when credit unions combine their straight-ahead financial thinking with concepts that don’t always immediately show up on the bottom line yet have promise.
Serving Different Industries
Other credit unions note how they can serve niche industries, some of which later grow into significant parts of the economy. $1.7 billion Northern Credit Union, with 33,000 members and based in Sault Ste. Marie, Ontario, works to reach small businesses across the vast area of northern Ontario. Northern CU also offers services aimed directly toward northern farmers, who face unusual challenges ranging from tricky growing seasons and supply chain hiccups because of their distance from markets to the unpredictable and increasing effects of climate change.
Ontario’s $6.7 billion/154,000-member Alterna Savings and Credit Union Ltd. has an even more specialized agricultural area. Since 2016, it has been helping Canada’s cannabis sector, working with regulated medical marijuana producers.
Alterna was one of Canada’s first financial institutions to support the cannabis industry. Since marijuana products were legalized in Canada in October 2018, Alterna has continued to meet the business needs of cannabis producers through products and services tailored to them.
Coping With COVID
Like all services, credit unions had to be exceptionally responsive to small business needs when the COVID-19 pandemic began in March 2020 and as it continues to ebb and flow.
It continues to be important for credit union managers and executives to understand the particular threat that two years of upheaval has meant for many smaller businesses, MNP’s Bester notes.
“When something like a pandemic happens and a business has to close for months and months, it can be devastating,” she says. Many small businesses relied on their credit union partners not just for hard-edged survival planning as lockdown persisted, but also for assistance in navigating programs such as the Canada Emergency Business Account, which offered small business an interest-free loan but could be complicated when ensuring that eligibility requirements were met as the rules evolved.
It's up to each credit union to decide internally what its risk tolerance is for working with small businesses, Bester says. “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,” she wrote in a blog post.
Understanding the New Economy
The economy is not only changing constantly—it seems to be happening quicker than ever, and this requires a sophisticated understanding of both the risks and opportunities that come with engaging with small business.
“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,” Bester says.
“Many of these people have decided to start something of their own as start-up 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.”
There’s a difference between considered hesitation and blanket judging, though. Because small business is overwhelmingly the largest part of the economy, it’s always an untapped market—new businesses are being created all the time.
“The best way for you to get into this largely untapped market is to reevaluate your internal risk profiling process and your staff,” Bester says. “While you should certainly not do business with every budding entrepreneur or start-up that approaches you, spend time getting to know the founder and understand what they’re trying to do.”
Getting Ready for Opportunities
“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,” Bester says.
Sometimes it means building an internal team dedicated to a sector or a business niche, as Conexus CU has done with Cultivator and Conexus Venture Capital. That team needs members with skills and abilities that enable them to digest information that start-ups are providing—to understand the new economy’s language without forgetting the old, established principles.
And that means being able “to look past historical financial information to understand future oriented potential, while knowing what questions to ask or when to dig deeper,” Bester says.
Not everybody has a job—more and more people have gigs these days, for example. “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,” she adds.
“Start-ups 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 start-up portfolio,” Bester says.
Credit unions and small business seem to be made for each other in many ways, but they also need each other. Businesses need the quick, informal thinking and local commitment that credit unions offer, and credit unions need to grow.
Only 15% of credit union members in Canada are between ages 18 and 24, even though this group makes up 27% of the population. This is the group that’s already building the new economy—it’s the future of small business, and with the right business strategy it will be credit unions’ future too. cues icon
David Israelson is a non-practising lawyer, writer and consultant based in Niagara-on-the-Lake, Ontario.