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Small credit unions face unique challenges in today’s financial landscape, from increasing regulatory requirements to competition from larger financial institutions and fintech companies. Despite these challenges, many small credit unions continue to succeed by leveraging strategic initiatives such as regulatory relief programs, field of membership (FOM) expansion, and targeted grant funding. With an entire industry that has combined assets smaller than the largest bank in the country, small is a relative term. For the sake of clarity and intent, we are going to define “small” for this article as credit unions $250m and under. The smaller the asset size, the more impactful these strategies can be when deployed successfully.
By utilizing low-income designations, community development certifications, and innovative lending strategies, small credit unions can strengthen their financial standing to serve their members more effectively. I’ll lay out a few key strategies that have proven successful for small credit unions and offer insights into how institutions can take advantage of these opportunities to sustain long-term growth.
1. Capitalize on Regulatory Relief for Business Model Optimization
Regulatory relief programs offer significant benefits that can enhance a small credit union’s ability to lend more, grow faster, and better serve its members. Among the most effective regulatory designations for small credit unions are the National Credit Union Administration’s (NCUA) Low-Income Designation (LID), Treasury Department’s Community Development Financial Institution (CDFI) Certification, and Minority Depository Institution (MDI) Designation.
Low-Income Designation
A Low-Income Designation (LID) from the NCUA provides credit unions with valuable regulatory benefits. Some of these include:
- Exemption from the Member Business Lending (MBL) Cap, allowing more flexibility to offer loans to small businesses
- Access to secondary capital / subordinated debt, which enables credit unions to strengthen their financial position and expand lending, while including this debt in their regulatory net worth calculation
- Eligibility for federal grants and technical assistance that can be used to enhance services and more proactively invest in technology
For many small credit unions, securing a LID designation is a game-changer. It not only provides financial flexibility but also signals a commitment to serving underserved populations.
Community Development Financial Institution Certification
The CDFI certification, granted by the U.S. Treasury Department, allows credit unions to apply for specialized grants and funding programs that support financial inclusion and economic development. CDFI-certified credit unions can:
- Access technical assistance grants (income statement) funding to help credit unions build internal capacity, invest in technology, and train staff
- Access financial assistance grants (balance sheet) for direct capital injections that can be used to expand services, offer new products, or enhance lending programs
- Similar Member Business Lending (MBP) Cap exemptions and eligibility for secondary capital to those offered to a Low-Income Designated credit union
Small credit unions that have obtained CDFI certification have successfully used the funding to launch more fairly priced, lower-cost loan programs that compete directly with predatory lenders (payday lenders, buy here pay here auto loans), helping members avoid predatory lending traps.
Minority Depository Institution Designation
The MDI designation is designed to support credit unions that are minority-led and serve predominantly minority communities. MDIs can access:
- Technical assistance grants to expand lending and enhance operations
- Federal and state partnerships that support financial inclusion
- Networking and collaboration opportunities with other MDIs to strengthen best practices
By obtaining MDI designation, small credit unions can enhance their mission of providing financial services to historically underserved communities.
2. Grant Programs: Funding Growth and Member Services
Small credit unions often struggle with capital constraints that limit their ability to innovate and expand services. However, strategic grant utilization can help fill these gaps.
NCUA and CDFI grants provide small credit unions with funding to:
- Modernize technology and enhance cybersecurity
- Expand financial education programs to serve members better
- Develop affordable loan products tailored to low-income members
For example, small credit unions have successfully used NCUA’s technical assistance grants to implement financial literacy programs, enabling members to improve their credit scores and access better financial products.
Here are some examples of how small credit unions have used grants to drive growth:
- Funding a small-dollar loan program: small credit unions used CDFI grants to launch innovative, targeted loan products that compete with other predatory or non-traditional personal loan products in their communities, helping members access affordable credit without falling into debt traps.
- Investing in digital banking: small credit unions have secured grants to upgrade their online banking platforms, remote deposit capture, and fraud prevention tools.
- Expanding financial counseling services: credit unions have used grants to hire certified financial counselors who provide personalized coaching to help members build financial resilience.
These strategic investments not only strengthen the credit union’s financial position but also enhance member engagement and share of wallet.
3. Expanding Field of Membership (FOM) for Growth
Expanding Field of Membership (FOM) is one of the most effective ways small credit unions can better drive growth. For credit unions with lower potential field of membership (or total addressable market), by broadening eligibility criteria, credit unions can reach more potential members and increase deposits and loan volume. As a general benchmark, if a credit union has a field of membership penetration rate higher than 1.5%, field of membership may be an inhibitor of growth.
Some field of membership increases may be paired with the need (or opportunity) to explore a different charter type. Below is a review of the most popular charter types by asset size. Understanding the evolution of charter types through the various stages of credit union growth. Generally smaller credit unions evolve from single-group (SEG) sponsorship to either community or multi-ground (multiple common bond) charter types as growth within their existing field of membership becomes more restricted.
Small credit unions often expand their FOM by:
- Transitioning from a single Select Employee Group (SEG)-based model to a community charter
- Partnering with underserved and community-based organizations, such as faith-based groups or local nonprofits
- Applying for underserved area designations, allowing them to serve entire geographic regions while still retaining SEG-based relationships in their charter
4. Increasing Marketing Activities
Field of Membership optimization and regulatory relief help set small credit unions infrastructure up for growth, but marketing and business development is the fuel for that growth. In one analysis on credit union growth, CUCollaborate’s Partner and Chief Economist, Luis Dopico, found that the impacts on asset growth of spending one dollar in marketing are seven times larger than the impacts of spending that dollar on increased interest rates on deposits.
Even with increasing year-over-year marketing spend, it can be difficult for small credit unions to try to compete against large competitors with ad and marketing spend that can rival their entire asset size. Successful credit unions focus on hyper targeted marketing strategies that are scalable and affordable including:
- Digital and Social Media Marketing: Some credit unions have successfully leveraged platforms to engage younger audiences and increase brand awareness, encouraging satisfied members to leave positive reviews to attract more people looking for community-focused financial institutions
- Text Message and Email Campaigns: Engaging members with tailored financial product offers through direct messaging
- Referral and Incentive Programs: Encouraging existing members to refer friends and family by offering cash incentives or discounts on loans
5. Community Impact and Select Employee Group Engagement
Credit unions that integrate community and SEG engagement into their marketing growth strategies often see stronger member loyalty and sustainable financial performance. Small credit unions are inherently more focused on their memberships and communities. This competitive advantage allows for lower new member acquisition costs.
Some of the most successful small credit unions have grown by:
- Collaborating with local businesses and nonprofits to offer co-branded financial literacy programs and broader community support
- Sponsoring events that align with their mission and target membership base
- Offering workplace banking services to local employers, paired with wrap-around financial wellness programs through a comprehensive SEG-based growth strategy
In effectively collaborating with organizations in their local community and field of membership, small credit unions can take a relationship-based, or account-based approach to growth. Refining this strategy allows small credit unions to double down on their local competitive advantage.
6. Branding and Repositioning
As credit unions expand their field of membership and add new services, rebranding can help communicate their value proposition or more importantly, avoid confusion around who is eligible to join. Rebranding can be seen as potentially taboo if it risks acknowledging the credit union’s legacy or is seen as an expensive distraction to other more obvious credit union goals. Small credit unions can successfully address this growth risk without spending a lot of money or getting away from their legacy by:
- Understanding that a rebrand is more than just a logo or a tagline — it’s the foundation of how the organization is perceived and remembered by your audience, including its legacy
- Keeping the rebranding change management cost down to focus on the critical elements of the rebrand
- Approaching rebranding with a clear strategy and strong creative execution
Conclusion
Small credit unions have a unique opportunity to grow by leveraging regulatory designations, maximizing grant funding, and expanding their membership base. By pairing these with continued increases in investment in marketing and business development expansion, small credit unions can remain competitive, relevant, and financially strong.
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