MIRAMAR, Fla. - One CUSO here is piloting an innovative program through which a credit union’s commercial and business members can extend the CU’s financing to that company’s own clients in much the same way auto dealers provide indirect lending.
In short, the web-based program allows vendors to take loan applications for the CU.
CU Business Capital here is currently piloting the indirect lending program with plans to roll it out in May to all of the CUs it serves nationwide, said Murray Halperin, SRVP of marketing and business development. Testing the program with a credit union in the northeast–which Halperin declined to name–the program partners with vendors who sell to businesses within a CU’s field of membership. The vendors are given access to an online loan application tool that resides on the credit union’s website. When they call on the business to sell their products, they also promote the credit union’s financing.
The key to the program is an easy-to-use web application that makes it simple–and quick–for the vendor to send in applications, according to Halperin. During the pilot, applications have received conditional approval within minutes for amounts under $100,000, Halperin said. Loans above that figure that are not tied to real estate are approved within 24 hours.
“For small business loans the competition is promoting speed of approval, speed of processing, and speed of communication. You can go to Wells Fargo or any of the big banks and enter a loan application and be approved within minutes,” Halperin told Credit Union Journal. “If we are going to be successful in small business lending, we have to come up with technology that’s going to allow us to compete. That’s the reality.”
While the program has yet to be named, it works this way: the vendor submits an online application, taking the credit information from the business. The application comes into CU Business Capital, which performs the underwriting and recommends to the credit union–which can follow the process online the entire way–to approve, deny, or address conditions in the application. The credit union makes its decision, and if the loan meets the CU’s guidelines, it receives approval.
CUBC then gets back to the applicant and copies the vendor acknowledging the approval and terms and conditions.
“The vendor has the authority to proceed with making sure they get the signed purchase order,” Halperin said. “The program helps vendors make a sale, puts the credit union in front of their charter groups, and provides easy access to capital for the for the local market. It functions like a mini indirect auto lending system.”
Halperin said targets for the indirect program, which sets a ceiling of $100,000 for the quick-approval loans–are companies that have been in business for at least three years.
“They have to have a certain amount of annual sales, which varies by market. And we really like to first market to those businesses that have been around for five years or more,” Halperin said.
Not only does the program bring in loans, but deposits as well, according to Halperin. Vendors have accounts at the credit union, and when loans are funded, the money is sent straight to those accounts. “You don’t write a check, Halperin said. “You do an in-house transfer.”
Halperin said the pilot is going well, but declined to provide additional details on the number of loans closed. The beta test is working with a credit union that has a defined charter, and serves small businesses run by individuals with a professional license, such as doctors, lawyers, accountants, and architects.
