Business of Business

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PHOENIX-With Congress in recess, credit unions are expected to lobby hard in members' home districts for relief from the member business loan cap following new data showing jobs-creating MBLs were the strongest loan category during the first half of the year.

Meanwhile, without relief from the cap at least one CU is worried about the opposite problem-layoffs. Arizona State Credit Union is getting close enough to the 12.25% of assets cap on member business loans that it has reduced volume and is reporting that 10 of its employees are in danger of losing their jobs because of volume slowdowns.

"We are within 91% of our MBL lending cap," Chuck Anderson, EVP-commercial lending, told Credit Union Journal. "It would be much higher except that volume has fallen to a trickle. The cap is now dictating our MBL lending strategy. So we look to portfolio management and originate to sell participations to other credit unions, which adds an entirely different set of challenges."

With commercial real estate following a similar path to residential real estate, solid secured business loans are tough to come by.

"The majority of the small business loans we are now originating, including those that involve CRE, are smaller in dollar amount than we have seen over the past five years," Anderson told Credit Union Journal. "I suspect this has to do with the slowing of Investor/Developer borrowing. The $5,000 to $35,000 loans are either unsecured, or secured by margined equipment or vehicles."

Data from Callahan's FirstLook analysis showed member business lending has grown 9.7% during the past 12 months, playing a critical role in keeping CUs' lending portfolios stable. MBL far outpaced credit unions' traditional bread and butter, auto loans, which actually declined, and also exceed and topped credit card lending by three percentage points.

In Atlanta, Delta Community CU here made approximately $60-million in MBLs during 2009 and is on pace to match or exceed that volume in 2010. Eric King, VP-business services, said the $3.65-billion DCCU is approximately "halfway" toward the 12.25% cap on business loans in a CU's portfolio. Should the cap not be increased, he said it's likely "there would be some slowdown of our capacity to help businesses."

In a tough lending environment businesses are becoming much more open and sophisticated when it comes to communicating with their lenders, King noted, and that's played a role in protecting against the downside credit risk. Delta Community CU has taken on the role of educator for local businesses, giving "not yet" responses instead of "no's," and working with entrepreneurs to create better business plans and build corporate credit histories that will enable the borrowers to be approved for loans in the near future.

"Getting a loan is not a sales pitch, it is really about helping your lender get extremely comfortable with your ability to understand cash flow, your assets," said King. "So we spend a lot of time talking with business customers to help them better understand the whole picture."

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