Eight Thriving Cottage Industries

Their growth potential makes them prime lending candidates for CUs.

January 11, 2013

Cottage industries—businesses that can be started by individuals in their homes—present major lending opportunities for credit unions.

Many of these “homepreneurs” may already be credit union members, and they may lack access to another financial institution for credit to expand their business.

These small business owners may seek out the low rates and personalized services that credit unions can offer, giving credit unions a competitive advantage over other providers in this market.

Homepreneurs are likely to offer a service rather than manufacture a product. They typically provide services locally that are impossible to replicate by remote service providers or low-wage foreign firms.

Industry

10-Year Annualized Revenue Growth (2007 to 2017)

Psychologists, social workers, and marriage counselors 5.0%
Alternative healthcare providers 4.2
Online pet food and pet supply sales 3.5
Personal waxing and nail salons 3.1
Psychic services 1.2
Party and event planners 1.0
Maids, nannies, and gardeners 0.8
Performers and creative artists 0.6%

In particular, growth and consolidation among personal care, household, and entertainment service providers may harbor the most alluring opportunities for credit unions during the next five years, according to analysis from industry research firm IBISWorld [ibisworld.com].

To isolate industries that average about one employee per enterprise, IBISWorld recently queried its database of more than 1,000 industries. This table shows a revenue forecast for cottage industries projected to grow most quickly during a 10-year period.

These cottage industries present unique lending opportunities for credit unions, as growing businesses are likely to seek out loans to invest in their operations to foster even faster growth or higher returns.

1. Psychologists, social workers and marriage counselors

Two-thirds of American adults and one-third of children who need mental health treatment do not receive it, according to the National Mental Health Association.

A reform-mandated increase in insurance coverage for psychological services is expected to help psychologists address this unmet need and open or expand such businesses.

Private practices can be lucrative for individual operators, so healthcare changes will provide an incentive for new businesses. Smaller operators without institutional financial backing will be most likely to seek out loans during the next five years.

2. Alternative healthcare providers

Healthcare reform prohibits health insurance companies from discriminating against licensed alternative healthcare providers, so these businesses should benefit as more people enjoy coverage for services. Alternative health care providers include meditation, yoga, and massage therapists.

Billing and coding for insurance payments is time-consuming and costly for small alternative providers. Expect industry consolidation, as larger operations are better able to properly perform these functions.

The number of industry operators is projected to decline approximately 4% per year on average during the five years leading to 2017. Consolidating firms may seek out small business loans, and their operating profits will likely benefit from post-merger synergies.

NEXT: Personal waxing and nail salons



3. Personal waxing and nail salons

Declining unemployment and increased disposable income will enable a greater number of consumers to afford nail care and waxing services.

Nails-only salons will likely diversify their offerings to include services such as massages, facials, and tanning.

Diversification will expand the industry's target market, helping to mitigate revenue volatility and increase the probability that operators will seek out loans for expansion.

4. Online pet food and pet supplies

The number of pets is forecast to grow 2% annually on average during the next five years, which will support revenue growth for homepreneurs offering pet-related services.

Loans will be likely used for start-up or expansion costs. Low barriers to entry and minimal employee skill requirements allow companies to enter this market without much difficulty.

5. Psychic services

Increased citywide regulations will likely be introduced during the next five years, which will result in industry consolidation. This may boost operator interest in small business loans to finance mergers or acquisitions.

With lessened price-based competition due to fewer operators, profit margins are expected to increase slightly by 2017.

6. Party and event planners

As unemployment falls and people have less free time, demand for professional event and party planning will grow.

This will set the stage for more industry entrants—in the five years to 2017, the number of participants is forecast to grow at an average annual rate of 2.5%.

Business loans will enable party and event planners to hire more employees and purchase more supplies to cater to a higher volume of events.

7. Maids, nannies, and gardeners

As the population continues to age, demand for home-care help will grow. If the unemployment rate continues to decline, that means greater per-capita income growth, spurring demand for household staff during the next five years.

Industry employment is expected to rise 3.7% per year on average from 2012 to 2017. As these small businesses expand, they may demand working capital loans to subsidize short-term costs like wages or to purchase inventory or machinery.

8. Performers and creative artists

Improved economic conditions may spur performers to seek loans for self-promotional purposes, such as producing acting reels or contracting for professional photography.

Effective marketing tactics also can help independent artists develop the necessary fan base they need to launch their careers. Anticipate that improved economic conditions will provide more avenues for revenue growth during the next five years.

The bottom line

These industries are mainly composed of regional small businesses that fit into credit unions’ “Main Street” lending activities. Homepreneurs will be attracted to credit unions’ lower fees and transaction costs or specialty services, which many commercial banks won’t offer.

As demand for financial services escalates, expect owners of these cottage industries to seek out loans to expand operations. During the next five years, small business growth potential makes these industries prime lending candidates for credit unions.

 

 

 

 

AGATA KACZANOWSKA is a lead analyst at the Los Angeles-based industry research firm IBISWorld.