Could the SBA be a TIP Charter?

One cause near and dear to the hearts of many credit unions is to comprehensively support their local communities. One way credit unions can do this is to partner with small businesses and employees of small businesses to offer account origination and lending options. By adding individual members and business accounts from small businesses, credit unions can facilitate community engagement and support local economies.

According to the US Small Business Administration (SBA), approximately 30.2M small businesses employ 48.9 million people. In 2016, the Federal Financial Institutions Examination Council valued small business loans less than $100,000 at $82.6B. With the number of banks decreasing steadily, the opportunity for credit unions to work with the small business market is ripe for the taking.

Recognizing the unique opportunity small business presents to credit unions, the NCUA issued a memorandum of understanding with the SBA to provide credit unions with the resources to better understand and serve the small business market. This partnership includes the SBA guaranty program, with more than 200 credit unions participating.

The sheer number of small businesses and their employees paired with increased lending market demand, and an SBA/NCUA partnership, there is no reason not institute a small business trade, industry, or profession (TIP) charter designation.

A TIP charter functions as an extension of a federal single common bond charter, based upon a common occupational bond of a trade, industry or profession. The TIP designation allows the single common bond credit union to serve multiple legal entities, as long as they offer similar products or services as a common trade, industry, or profession and within a defined geographic area. The TIP helps the credit union continue performing at high levels for their members because it allows them to stick with a group of financial services consumers they know and serve best.

Since the NCUA’s decision to permit TIP charters, 82 credit unions have converted through the third quarter of 2019, with some of the most popular TIPs being health care and government related. While the application process to become a TIP is relatively straightforward, the NCUA strongly suggests that applicants use the language and wording from previously approved TIPs to simplify the process. If a credit union does not select language and phrasing from the list of those approved in the past, the credit union must work with the NCUA to develop a new TIP.

Unfortunately, the challenges for proposing a small business TIP, don’t end here; several other hurdles present themselves. Perhaps the biggest obstacle to overcome is making the argument to define small business as a trade, industry, or profession.

According to the US Bureau of Labor Statistics, as of 2018, the Standard Occupational Classification System did not have a category for small business. So, it would be difficult to classify small businesses as a trade. Additionally, the North American Industry Classification System does not have a code for small business, therefore, it currently cannot be classified as an industry. This leads us to our last option of being able to define running small business as a profession. Perhaps one could make a case for being a small-business professional, but the journey to make the case and sway the NCUA could be arduous.

And of course, the TIP would not only need to serve small business professionals in the form of individual membership but also must serve business accounts. Assuming this is possible, it would be putting a significant amount of faith into the NCUAs interpretation of a charter’s Affinity Clause language, to include membership of legal entities.

While the desire and need for a small business TIP exists, reform is needed within system, and that seems likely to happen quickly. However, the agreement between the SBA and the NCUA to focus on small business lending is a promising start. In the meantime, for credit unions interested in serving the small business community, perhaps the most likely option is for a federal multiple common bond charter to focus on adding small businesses as select employee groups to capitalize on both employer and employee accounts.