Centris Lending Secret? Single 'Tank of Gas'
OMAHA, Neb.-If Centris FCU can't drive on one tank of gas to the small business that's requesting CU financing, it simply won't make the loan.
"We call that our tank-of-gas policy," said CEO Kevin Parks. "We want to lend to properties that are within our market that we can easily get to and inspect. We use that tank-of-gas analogy as a way to clearly define what we consider to be in our market."
It is that type of attention to creating sound policies, procedures, and ground rules for business lending that helped Centris garner the Small Business Administration's (SBA) small business Lender of the Year honors in the state and nationally, and turn around a commercial lending portfolio that was in trouble. The credit union has made its mark locally, and driven a successful business lending portfolio, by granting a large number of smaller loans that it can stay on top of-and in the long run help more people, noted Parks.
Parks reiterated the importance of a business lending program having strong and clear guidelines that are carefully followed. Included in those guidelines, Parks pointed out, is outlining the types of businesses the $450-million credit union will and will not lend to.
"For example, we said we do not want to be in any specialized business, like an ethanol plant or a resort property," Parks said. "And we don't want to finance commercial real estate developments. We prefer a local business that has a broad appeal."
Attention to Concentration
Centris, too, pays close attention to lending concentrations. "We do not want any large concentrations in any risk area, whether that be in the type of borrower or business sector," stated Parks.
That thinking is influenced by the credit union's previous business lending practices that were in place before Parks came on board in 2008. Those old policies created "issues" with the business lending portfolio that had very high delinquencies, Parks explained. Problems stemmed from the having concentrations in commercial real estate and specialized businesses, and many of the loans were outside the local market.
"We decided we would focus on our local market and on smaller businesses-drive down the loan size from what we had been previously doing," shared Parks. "We also do many, many more SBA loans. I think we had only one SBA loan on the books when I arrived. We felt we had a goldmine of small business owners within our membership base and we have mined that base."
Parks has separated the business portfolio that was in place before he arrived-terming that book of business "legacy assets"-from the current portfolio that has $27 million in outstanding loans and shows less than 1% delinquencies.
Centris has added employees-a VP of business lending, a loan officer, a commercial loan specialist, and credit analyst to bring the business lending staff to six. The CU also trains and then leans on the skills of tellers and MSRs to spot good business loan candidates to create a steady stream of referrals (see related story).
The Right Infrastructure
"You also have to have the overall infrastructure in place," added Parks. "That includes the risk mitigation and control structures. If you don't have those in place and just say you are going to get into the commercial lending business, you will get yourself into hot water."
Rates play a role, too, conceded Parks, however to a lesser degree than many of the key points he touched on. "We just try to be competitive in the marketplace and we pride ourselves on being low on fees and other charges. Every business loan stands on its own, so rates vary a lot. But typically we are in the 5% to 6% range."
The credit union's new award-winning approach to business lending is not only improving the CU's balance sheet and standing in the community, it is improving the lives of its members. "When you get down to it, the approach we are using allows us to help more people. At the end of the day, that is a very good measure of the success of your program."